Many questions have been raised over whether those who purchased Lehman Brothers-backed Minibond notes had the risks of these products adequately explained to them. The following is a prospectus for Lehman Brothers Minibond notes issued by HSBC. The 84-page document was issued in some cases to illiterate retirees.
We make it available here for readers to have a look and decide for themselves.
Click here to download the prospectus.
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39) Donaldson,
the pricing statement of one of the series can be found here:
http://www.lioninvestor.com/minibonds-update/
The reality is that despite the alleged risk disclosures, financial advisors, brokers or promoters usually do not emphasize the risk, only the return and safety of the investment. In the US, it is against just and fair principals of trade to sell an investment by only trying to sell how safe an investment may be, when the prospectus discloses substantial risk. This is a serious violation of the duty of the seller’s agent because they are not giving a balanced presentation of the risks, only the rewards. It is misleading to sell something just based on the size of the company that underwrites the product, without disclosing that the true collateral, being very risky collateralized debt obligations or subprime collateralized mortgage obligations, are instruments that were created by the firms to sell to the public, where the lower tranches of the investment are likely never to pay off. There was no reasonable efforts to perform underwriting on the very products that were serving as the collateral for these so called mini-bonds. We feel that the sellers, agents and promoters have some responsibility here for not truely knowing the product they sold before they sold it.
Lots of people seem to be worried about the prospectus shifting the blame back onto the buyers.
But there are other key questions too.
Did the government imposed conditions to protect the buyers? E.g. prohibiting selling to anybody who cannot understand the prospectus?
It may be a criminal offense to hand out application forms and advertising flyers without also making available a copy of the registered prospectus. Did this happen to anybody? If so, just have the selling banker arrested for criminal investigation. This offense can be committed even if there is no misrepresentation.
Finally, things may change materially from the date of the prospectus registration. That invalidates a prospectus unless it is updated. By early 2007, the US mortgage crisis was generally known and over 25 large mortgage lenders declared bankruptcy, with underlying securities prices plunging. But some banks were still selling this stuff well into 2007. The question is not whether they knew, but should they have known if they exercised due care?
Many questions have been raised over whether those who purchased Lehman Brothers-backed Minibond notes had the risks of these products adequately explained to them…. The 84-page document was issued in some cases to illiterate retirees.
I don’t find this reason practical enough to win this case in court. Even an illiterate person will buy and use a refrigerator without reading through all the terms of usage and risk. So if a refrigerator somewhere explodes and injure someone, can everyone who has a refrigerator at home ask for a refund?
On pragmatic grounds, chances of showing that the structured product is so complicated that it is unfit to be sold in the first place (but not other types of investment products or any other merchandise) is incredibly remote.
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there is hope for Lehman minibond notes victims.
an investors action group has engaged a lawyer to seek redress.
http://www.minibondsg.blogspot.com