FINRA Fines Broker-Dealer for Misleading Investors in Sales of Principal-Protection Notes

FINRA AWC Letter No. 2008015443301

April 11, 2011

FINRA announced that it fined a broker-dealer $2 million and ordered it to pay $8.25 million in restitution in connection with allegedly misleading investors as to the "principal protection" feature of certain Lehman-issued notes. In particular, FINRA alleges that the firm failed to properly emphasize to investors that the notes were unsecured obligations of Lehman when they sold them to investors in the summer of 2008. FINRA also cited the firm's failure to advise sales personnel of signs of weakness in Lehman's financial strength, and that it failed to establish an adequate supervisory system for the sales of the notes.

Please contact any of the following Cadwalader attorneys if you have any questions about this item:

Steven Lofchie; [email protected] Jeffrey Robins; [email protected] Maurine Bartlett; [email protected]

Glen Barrentine, [email protected]

Cross References

FINRA News Release

NASD Rules 2110, 2210, 2310, IM-2310-2, 3010

FINRA Rules 2010, 2111

Lofchie's Guide to Broker-Dealer Regulation, Ch. 5, § 1.A.2 (reasonable basis, customer product suitability)