Articles Tagged with 100% principal protection

On March 5, 2014, the Securities and Exchange Commission (SEC) announced the largest monetary sanction for Rule 105 short selling violations. A Long Island-based proprietary trading firm, Worldwide Capital, and its owner, Jeffrey W. Lynn, agreed to pay $7.2 million to settle the charges against them.

According to the SEC, Rule 105 prohibits short selling of an equity security during a restricted period – generally five business days before a public offering – and the subsequent purchase of that same security through the offering. The rule applies, to all equity trades, regardless of the trader’s intent. The rule is designed to promote offering prices that are set naturally by market driven supply and demand.

According to the SEC’s order instituting settled administrative proceedings, Mr. Lynn created Worldwide Capital for the purpose of investing and trading in a strategy focused primarily on new shares of public issuers coming to market through secondary offerings.  Mr. Lynn had traders execute trades on his behalf, seeking allocations of additional shares soon to be publicly offered, usually at a discount to the market price.  He and his traders would then sell those shares short in advance of the public offerings.  Lynn and Worldwide Capital improperly profited from the difference between the price paid to acquire the offered shares, and the market price on the date of the offering.

On August 8, 2013, UBS agreed to pay $120,000,000 to settle claims related to the Lehman Principal Protected Note cases. According to Reuters, this is UBS’ second settlement in less than three weeks.

According to counsel, the $120,00,000 settlement represents a recovery of 13.4% of the total face value of the structured notes. The parties have stipulated to certify the case for the purpose of settlement. If the class action is approved it will resolve over $898 million in claims against UBS for the Lehman Securities sold by UBS from March 2007 through September 15, 2008 when Lehman filed for bankruptcy in the Southern District of New York.

The question for investors is whether they should take the settlement after approval by the court or reject the settlement and bring a claim individually against UBS. In an individual arbitration, the chances of getting more than a 13.4% recovery is fairly substantial. Many of the UBS Lehman Principal Protected Note cases that went to arbitration since 2009 have resulted in large awards for investors and many have settled before hearing.

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