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Lehman Certificate Holders Lose German Suits Over Disclosure

Two consumers lost their lawsuits in the first German top court cases heard over sales of certificates issued by Lehman Brothers Holdings Inc.

The Federal Court of Justice rejected suits seeking 10,100 euros ($13,600) each from Hamburger Sparkasse, the savings bank that sold the products. The German bank advised its customer adequately about the risks and didn’t have to disclose that it sold the products for a higher price than which it bought them, Presiding Judge Ulrich Wiechers said.

“At the time the products were sold, no one expected a Lehman collapse, so it was enough to inform about the general risk that an issuer can go bankrupt,” said Wiechers. “That the bank made money by selling the products is obvious, and the bank didn’t have to explicitly disclose that.”

The ruling is a blow to thousands of Germans who bought certificates and lost their money because of New York-based Lehman’s 2008 bankruptcy. The U.K. Financial Services Authority in 2010 fined a London-based financial advice company 700,000 pounds ($1.1 million) for not fully explaining the risks of similar products backed by Lehman to customers.

“We don’t feel like winners, even if the top court ruled in our favor,” Reinhard Klein, a Hamburger Sparkasse executive, said in an e-mailed statement.

Swap Ruling

The ruling clarifies whether margins need to be disclosed and how far advising duties go, he said. The decision is important for banks that feared the top court might continue to beef up legal disclosure requirements after a March 22 swap ruling by the same judges.

While they said in their March ruling that a bank must disclose a negative market value of a “highly complex” interest-rate swap, which included the bank’s profit margin, judges ruled today that lenders don’t have to disclose that figure when selling their own products.

Banks also don’t have to disclose they buy certificates at a lower price than they are selling them to customers, Wiechers said.

The suits were brought by a retired teacher and a beauty-parlor owner. One of the certificates was linked to the DAX index and the other one to the Dow Jones EuroSTOXX 50 index.

“I’m totally disappointed by the ruling,” said Richard Lindner, the plaintiff’s attorney. “Regulators issued rules that require the disclosure of the profit margin in these cases, and this court now says that has no effect in a civil suit.”

The cases are BGH, XI ZR 178/10, XI ZR 182/10.

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