SIAS Advisory: Q&As for Investors of Structured Products linked to Lehman Brothers

Date: July 8, 2009

Some may be considering whether to accept pending settlement offers from financial institutions (FIs), or whether to accept the orders for awards made at FIDReC. To provide guidance to such investors who have as yet not resolved their complaints in relation to the said notes, SIAS has put together the following Q&As.

For investors who have already resolved their complaints with their financial institutions or at FIDReC, It is likely that as part of the terms of the settlement agreement, no further action can be taken on the same matter.

We encourage investors who want to become more confident in their investment decisions to continue to equip themselves with knowledge regarding investment products and tools. SIAS is committed to empowering Singapore retail investors and safeguarding their rights through sharing of information and educational initiatives such as seminars and talks on investment products.

Q1: Given that MASメ investigation report found non-compliance by the various FIs, why is it that not all investors are compensated in full, and some even received nothing?

MASメ report addresses the FIsメ regulatory non-compliances with MAS Notices and Guidelines.

However, this does not automatically and by itself enable investors to obtain settlement. Investors must able to demonstrate that they had relied on the recommendation or representation complained of, and this would depend on the facts and circumstances of each case. This will include taking into account the documents signed at the point of sale.

For instance, you will need to show that you had relied on the advice or representation given by the FI when deciding whether to buy the product. Even if you can prove that there was reliance, there is a need to look at the extent of the reliance, and the documentation that was signed that could have contained risk warnings or disclaimers of liability of the FI. It is therefore possible that liability could be apportioned between the FI and the investor.

Q2: Since MASメ investigation report refers to various forms of non-compliance by the various FIs, will this assist investors in starting a class action suit against these FIs?

In Singapore, it is possible for multiple parties to come together to file legal action in court ヨ these are referred to as a モrepresentative actionヤ. Representative actions are appropriate only if all the claims are based on similar facts.

Q3: How can I use MASメ investigation report help me to strengthen my complaint against the FI?

You can read the report to understand MASメ regulatory requirements and sales practices of the FIs (this is set out in the Overview chapter). The report also states MASメ observations and findings in relation to the 10 FIs that distributed Lehman Minibond Notes, DBS High Notes 5, Merrill Lynch Jubilee Series 3 LinkEarner notes and Morgan Stanley Pinnacle Series 9 and 10 notes to retail investors.

If you have grounds to believe that your case was affected by any of the lapses that were observed by MAS, you can approach your FI to obtain more information regarding your case. See Q4 below.

It is important to tell the truth when giving information about your case. This is because in reviewing any case, the Financial Industry Disputes Resolution Centre (FIDReC) and the Courts would take into account the consistency of statements and representations made by you and the FI at various stages. Where there are inconsistencies, omissions or inaccuracies, this would affect the credibility of the case, and adverse implications can be drawn against the relevant party.

Q4: MASメ investigation report stated that some relationship managers (RMs) or representatives may not have attended product training or have been given proper guidance on the product. Some FIs even assigned inappropriate risk ratings the products for a limited period of time. How do I check if my case was affected by any of these lapses? Shouldnメt I be entitled to compensation if so?

SIAS notes that in MASメ press statement on 7 Jul 09, MAS stated that in reviewing each case under the complaints assessment framework that MAS required FIs to put in place, the FIs took into account the failings identified by MASメ investigation.. SIAS would expect that FIs considered carefully whether each complaint could have been affected by a non-compliance identified by MAS before making its decision on each case.

If you have not yet resolved your complaint with the FI, you can approach your FI to obtain more information. For example, you can enquire as to what training the person who sold you the product underwent, and what was the FIメs risk rating of the product at the time when the product was sold to you.

If you are not satisfied with the FIメs response and you have not lodged a claim with FIDReC, you can refer your matter to FIDReC for mediation and adjudication. If your claim is pending mediation or adjudication at FIDReC, you should inform FIDReC or the Adjudicator of your efforts to obtain such information from the FI,, but you are of the view that the FI has not responded satisfactorily.

However, as regards to obtaining compensation, do note that even if your case was affected by any of the lapses, it does not automatically mean you would be entitled to a settlement. As mentioned in Q1, investors will need to show that they had relied on the advice or representation given by the FI when deciding whether to buy the product. This would also depend on the specific facts and circumstances at the time of purchase, and this would include the various documents signed as part of the transaction.

If you have already accepted a settlement from the FI directly or at FIDReC, your options for recourse may be limited. See Q7 below.

Q5: When I bought the product, the FI did not give me any advice on whether the product was suitable for me. Shouldnメt I be entitled to some settlement?

If the sale was carried out on a “no advice” basis or an “execution only” basis, then it would be difficult for you to establish reliance on any advice or recommendation.

You can refer to MASメ report which explains the different business models used by the FIs – there is the financial advisory model, the モexecution-only modelヤ and where licensed financial advisory firms were engaged as introducers to the FI. This can be found in the Overview [Chapter 1, pages 12 – 18] in MASメ investigation report.

In cases where FIs had engaged licensed financial advisory firms to act as introducers for it, it is useful to find out which party was required to offer financial advice to you before selling the product to you. Information on the roles of parties in such introducer agreements is set out in MASメ investigation report. You may also seek clarification from your FI.

In addition, as stated in Q1, when reviewing any case, there is a need to consider the facts and circumstances of each case. There is also a need for investors to establish reliance on the recommendation or representation complained of.

Q6: The FI offered me a partial settlement offer. How do I decide if I should accept the offer or pursue the matter further at FIDREC or the courts?

Click here for SIASメ list of key points for investors to consider before referring complaints to FIDReC or the Courts.

Q7: I received a partial settlement offer from a FI for my complaint on Lehman Minibond notes. Will I be disadvantaged if I accept the offer now, and later find that the notes have some residual value?

The residual value of the Minibond notes will depend on the ultimate value of the Underlying Securities. At this point, the residual value is uncertain. There are also some legal issues involved, and the process to resolve these matters may be protracted.

Based on MASメ report, SIASメ understanding is that investors will not be disadvantaged if they choose to accept a partial settlement offer from the FI. SIAS notes that MAS press release states that for the Minibond Notes, where a partial settlement is offered, the client will retain all or a portion of his notes. For the portion of the notes retained, he will get to keep the residual value arising from those notes, if there is any.

Q8: What are the factors considered when FIDReC or the courts assess the merits of each complaint and deciding whether to order compensation?

FIDReC and the courts will examine all relevant facts and circumstances of the sale process of each case, with a focus on the following issues:

  • Whether the FI had given advice and made a recommendation of the product to the investor;
  • Whether the investor understood the key risks and features of the product, as explained by the FI;
  • The investorsメ ability to understand the risks and features of the product during the sales process (taking into account for example education level, type of employment);
  • Any prior investment experience;The extent to which the investor has reasonably relied on any recommendation or representation made by the FI or its representative; and
  • The documentation that was signed that could have contained risk warnings or disclaimers of liability of the FI and which formed part of the sales process.

Q9: I accepted an offer from the FI earlier/ I have accepted a FIDReC award earlier having read the MAS investigation report, I believe I have a stronger case. How can I pursue my complaint further?

  • Any settlement agreement reached between the FI and a consumer would have been agreed to by both parties. Similarly, when an award made at FIDReC is accepted by the consumer, the FI and consumer enter into a settlement agreement.
  • Settlement agreements would typically have clauses to indicate that the settlment is in full and final resolution of the dispute betwen the parties; and/or both parties will not take further action on the same matter.
  • SIAS is not able to advise on the specific details of the settlement agreement in your case. If you feel strongly that you have grounds to pursue the matter further, you may want to seek legal advice.
  • However, MAS has indicated that FIs in reviewing each case under their complaints assessment framework that MAS required them to put in place had taken into account the failings identified by MASメ investigation when making their decisions regarding offers of settlement made to investors.
Mr David Gerald J.
President / CEO
For Management Committee, SIAS