Lehman Equity Linked Notes (ELN)

Lehman Equity Linked Notes (ELN)

http://www.investmentlawyer.net/lehman-equity-linked-notes.php

If you invested in a Lehman Brothers Holdings, Inc., ("Lehman") issued Equity-Linked Note ("ELN"), which provided for "100% principal protection," and you lost a substantial portion or all of that investment, you may have a meritorious claim for your economic loss.

An ELN is a type of Lehman structured product that is a security issued by a brokerage firm and traded in secondary markets like shares of common stock. These investments offer part of the upside from owning stocks but limit the loss of at least the principal of the investment, which can be returned to the investor upon the maturity of the note. An ELN is structured by combining a long zero-coupon bond position (a right to the value of the bond upon its maturity, however without any interest payments) with a long call option (a right to sell a specific number of equity positions of a stock in the future at a set price at a set time). The return on the bond within an ELN is not based upon a fixed interest percentage of the bond, but on the appreciation of a single stock, basket of stocks, or equity index (the "underlying equity"). Thus, the ELN is a debt instrument where the final return is based on the return of the value of the principal of the bond investment along with the appreciation of the underlying equity. The bond provides the note buyer with protection of their principal, while the call option allows them the ability to realize potential gains on top of their principal investment.

ELNs were once sold only to sophisticated investors, however in recent years Lehman structured products have been increasingly sold to unsophisticated investors. ELNs are difficult to evaluate and monitor, as well as have high hidden costs, including taxes on profits, and are illiquid. As a result, these types of investments are almost never suitable for unsophisticated investors under securities laws. Although the bond portion of an ELN is protected against risk from the market, it could still lose its value where the issuer of the bond goes bankrupt and can no longer pay back its obligations. When Lehman Brothers went bankrupt, all of the holders of Lehman Brothers ELNs lost most of or all of their principal investment.

Many of the Lehman Brothers ELNs were publicized as able to provide "100 protection of the principal" of the investment, as late as July and August 2008, and in some cases less than 1 month before Lehman Brothers went bankrupt in September 2008. In other cases, Lehman Brothers ELNs were sold by other investment banks, such as UBS, Wachovia, Merill Lynch, Citigroup, or others, who did not disclose that the ELNs were issued by Lehman Brothers and were at risk in the case of a Lehman Brothers bankruptcy. In both of these cases, the investors may have a strong claim against either Lehman Brothers or their brokerage firm.

Investors who specifically asked for investments that protected their principal may also have a strong claim. Brokers who advised their clients that Lehman Brothers ELNs were safe investments for risk-adverse clients may be liable for misrepresentation. Hundreds, if not thousands of clients have come forward since they lost a substantial portion or all of their Lehman Brothers ELN. Many of these investors have solid claims that they may bring through arbitration procedures with the Financial Industry Regulatory Authority (FINRA).

If you are someone you know has lost money investing in these products, Napoli Bern Ripka LLP can help. Please call us at (212) 267-3700.