* Investors claimed they were misled about Lehman's health
* Pact requires court approval, no admission of wrongdoing
By Jonathan Stempel
NEW YORK, Aug 9 UBS AG has agreed to
pay $120 million to settle a lawsuit by investors who accused
the Swiss bank of misleading them about the financial condition
of Lehman Brothers Holdings Inc in connection with the sale of
The preliminary settlement was disclosed late Thursday in
papers filed with the U.S. District Court in Manhattan, and
requires court approval.
It is UBS' second settlement in less than three weeks to
resolve U.S. litigation tied to the global financial crisis.
Last month, UBS reached an $885 million accord with the U.S.
Federal Housing Finance Agency to resolve claims that it
misrepresented the quality of mortgage securities it sold to
Fannie Mae and Freddie Mac.
The latest settlement resolves claims over roughly $900
million of Lehman securities that UBS underwrote and sold
between March 2007 and September 2008.
Investors accused UBS of making materially false and
misleading statements in offering documents about Lehman's
financial condition and creditworthiness, as well as the
"principal protection" feature of some of the securities.
Lehman had been Wall Street's fourth-largest investment bank
before it filed for bankruptcy protection on Sept. 15, 2008.
UBS spokeswoman Megan Stinson said on Friday the Swiss bank
was pleased with the settlement, saying it avoided the cost and
uncertainty of litigation, and had set aside reserves to cover
it. The bank did not admit wrongdoing in agreeing to settle.
Daniel Girard, a partner at Girard Gibbs representing the
investors, also said he was pleased to settle.
"Our clients recognize that continuing the litigation would
mean more delay and the risk of coming up empty-handed after
more than five years of litigation," he said.
In a court filing, Girard said the accord compared favorably
with other financial crisis settlements, and equaled 15.5
percent of the maximum $773 million recoverable statutory
Principal protection notes are fixed-income securities that
include a bond and an option component that offers a minimum
return equal to the initial investment. They are tailored for
According to UBS, Lehman's principal protection notes
reflected how some or all principal was an unconditional
obligation of Lehman, even if the overall return was linked to
market indexes or other measures.
In April 2011, UBS agreed with the Financial Industry
Regulatory Authority to pay a $2.5 million fine and up to $8.25
million in restitution for misleading investors about Lehman's
principal protection notes.
The case is In re: Lehman Brothers Securities and ERISA
Litigation, U.S. District Court, Southern District of New York,