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Et tu Schwab?


Discount brokerage Charles Schwab may be facing a Lehman-sized headache.

It appears some Schwab brokers were actively selling so-called structured notes–derivative-like investments–that were issued by the now bankrupt Lehman Brothers. The structured notes were pitched as principal protected, meaning investors might not make a lot of money if a strategy failed, but they wouldn’t lose their initial investment either.

The only problem with the sales is pitch that the Lehman issued structured notes were guaranteed by Lehman. The notion that an investors’ prinicipal investment was 100% protected went out the window when the Wall Street firm filed for bankrupty last fall.

Lehmans’ collapse is proof that unless an investment is backed by the federal government there really is no such thing as a “100% principal protected” note.  In other words, there are no free lunches for investors on Wall Street.

Seth Lipner, a New York securities lawyer, says he’s on the verge of filing an arbitration claim against Schwab on behalf of a Florida couple who purchased Lehman structured notes through Schwab. He claims Schwab “misrepresented” the risks associated with these notes. Lipner’s clients invested $60,000 in these now all-but-worthless notes. But Lipner suspects Schwab peddled Lehman notes to many other customers.