Investors to sue Lehman in Europe for compensation

BRUSSELS Oct 2 (Reuters) - Investor rights group Deminor is launching legal action on behalf of people who lost money from securities issued by Lehman Brothers (LEHMQ.PK), the investment bank dragged under by the credit crunch.

Deminor said Netherlands-registered Lehman Brothers Treasury Co BV had issued bonds and structured products worth $34 billion in Europe that were "unconditionally and irrevocably" guaranteed by U.S. parent Lehman Brothers Holdings Inc.

The parent and the unit went into bankruptcy protection this month and have found buyers for chunks of the business.

"Due to this, a large number of investors across Europe who acquired these bonds and structured products from Lehman Brothers now face substantial losses," Deminor said in a statement.

Many of the instruments were sold through retail banks in Europe as traditional products with no mention of their "exposure to a highly leveraged American bank", Deminor said.

European banks were "inexact" in describing the risk profile of the products and how it changed over time, in violation of European Union financial services rules known as MiFID, Deminor said.

Deminor is taking legal action to recoup the losses.

"Deminor will also launch an action against the financial intermediaries which distributed bonds and structured products on the European market and did not comply with MiFID rules," the group said.

Many structured products backed by U.S. mortgages plunged in value when home owners began defaulting on the loans last year, leaving some products untradeable.

Lehman Brothers is being split up, with Japan's Nomura Holdings (8604.T) buying its European and Middle East equities and investment banking business.

Britain's Barclays (BARC.L) has bought most of Lehman's core U.S. investment banking operations, with two private equity firms buying its Neuberger Berman asset management business.

No buyer has stepped forward for Lehman's European fixed income operation. (Reporting by Huw Jones; Editing by Quentin Bryar)