Lehman Brothers Principal Protected Notes

Klayman & Toskes is presently investigating the sale of Lehman Brothers Principal Protected Notes (“Lehman Principal Protected Notes”) by full-service brokerage firms to their customers. Also referred to as guaranteed linked notes, these securities were “structured products” that combined fixed income investments with derivatives. What resulted was a product that supposedly provided the protection of fixed income, with the upside of the stock market.

Lehman Principal Protected Notes were marketed by several brokerage firms, including Lehman Brothers, Citigroup, UBS, Merrill Lynch and Wachovia, as conservative investments. Investors looking for income with capital preservation were advised that Lehman Principal Protected Notes would provide preservation of capital, a modest yield, and a slight gain in principal. In a brochure issued by Lehman Brothers, it stated that their “structured notes”, which includes Lehman Principal Protected Notes, had “100 percent principal protection” and “uncapped appreciation potential” based upon the gains in the S&P 500 Index. In reality, however, investors of Lehman Principal Protected Notes were subject to a significant amount of risk.

Lehman Brothers sold its North American investment banking and capital markets businesses to Barclays earlier this year. In the deal, Barclays agreed to buy Lehman’s operations, along with trading assets valued at $72 billion, and trading liabilities worth $68 billion.

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