Lehman Brothers Principal Protected Notes

Lehman Brothers went out of business in September 2008. That has received a lot of attention. But what has gone largely unrecognized is that in its dying days Lehman Brothers was selling certain securities that were inappropriate for the conservative investors to which they were sold.

Specifically,  Lehman Brothers created “principle protected notes,” which, according to the marketing materials that were used to sell them, guaranteed that the value of the principle could not decline. The notes also promised investors  an opportunity to increase in value if the value of the Standard & Poors 500 also increased. In other words, these investments were sold if they you could not lose money, but still had the potential to make money as if you were investing in the stock market.

This sounds like it was too good to be true. And it was.  Although these “principle protected notes” sounded as if they were simple and safe investments, in fact they are highly complicated investments. These notes combined different kinds of derivatives.  The allegedly guaranteed portion was guaranteed by the bank. In this case, the guarantor was Lehman Brothers.  But this and other “structured products” were subject to a risk that was not adequately explained to investors—the guarantee is only good as the company that backs your investments.  And in this case that company—Lehman Brothers—failed.  And when that happened, your investment, which was supposed to be guaranteed, tumbled in value. It appears that some of these investments have now become worthless.

If you were steered to buy “principle protected notes” or other “structured products” sold by Lehman Brothers, please contact us. We may be able to recover some or all of your losses.