About 3,700 U.K. customers who bought financial products guaranteed by Lehman Brothers Holdings Inc. will have to seek compensation after two firms that sold the investments sought bankruptcy protection.
NDF Administration Ltd. and Defined Returns Ltd., both based in St. Albans, England, entered administration today, Britain’s financial regulator said. The decision came after an investigation into whether firms improperly sold structured products to customers, the regulator said.
The Financial Services Authority “examined the firms’ systems and controls and marketing literature,” the London- based agency said today in a statement. “As a result, the FSA asked the firms to assess their financial position in relation to potential claims by investors with Lehman-backed structured products.”
Lehman collapsed in September 2008, roiling financial markets and sparking lawsuits by former clients whose assets were frozen in insolvency proceedings around the world. Structured products have also come under scrutiny in firm- specific investigations by the FSA, including that of Keydata Investment Services Ltd., which administered 2.8 billion pounds ($4.47 billion) of assets.
Structured products were typically marketed as guaranteeing the principal amount of money invested, even if no returns were possible. When Lehman collapsed, the original investment wasn’t paid back.
The two firms’ 3,700 customers with Lehman-backed products must apply to the Financial Services Compensation Scheme, Britain’s deposit-guarantee program, for a maximum of 48,000 pounds reimbursement, the FSA said. It may take six months to review the cases, it said.
In the meantime, investors won’t be able to redeem investments or receive income from the products, according to Grant Thornton U.K. LLP, the companies’ bankruptcy administrator. Both companies’ Web sites directed queries to Grant Thornton.
“The decision to put the company into administration follows the recognition of large potential contingent liabilities within the companies,” Grant Thornton said in a statement. “The insolvency of Lehman Brothers has left NDFA and DRL open to potential claims from customers.”
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