HK firm agrees to buy back Lehman investments

HONG KONG - Hundreds of Hong Kong investors in Lehman Brothers-backed products may get their money back after a major brokerage agreed to repurchase nearly $11 million of the investments, possibly worthless after the U.S. firm's collapse.

The deal represents the first major payout by financial companies in the territory's ongoing dispute over the products tied to Lehman Brothers Holdings Inc. Investors — among them retirees who sunk their life savings into the products — have faced billions of dollars in potential losses since the storied Wall Street firm filed for bankruptcy in September, leading to widespread anger, demonstrations and government probes.

The brokerage, Sun Hung Kai Investment Services Ltd., agreed to the settlement as Hong Kong regulators announced late Thursday they were reprimanding the firm following an investigation.

The agreement was adopted in the "best interest" of investors, Martin Wheatley, chief executive of Hong Kong's watchdog, the Securities and Futures Commission, said in a statement.

Investors welcomed the buyback offer.

After months of street protests, retiree Ng Shin-fung was relieved by the prospect of recouping some of the $20,000 he invested in Lehman products through Sun Hung Kai four years ago.

"Giving us back the principal is the best solution," said Ng, 61. "It's a positive response from Sun Hung Kai, but I won't be happy until I really have the money back in my pocket."

Others hoped the move would ratchet up pressure on the host of brokerages and banks that sold the products to follow suit.

"It's a breakthrough," said Peter Chan, head of a group of Lehman investors that's weighing a class-action lawsuit. "It shows banks and brokerages have to own up to their responsibility."

Chan said investors would wait to see whether other distributors of the financial products will offer payouts in the coming weeks before moving ahead with a possible lawsuit.

A group of 18 banks who sold the investments was reviewing the decision, said Sukyi Yau, a spokeswoman for the banks. She declined further comment.

Under the deal, Sun Hung Kai promised to buy back products distributed to clients at a price equal to the principal amount, totaling up to 85 million Hong Kong dollars (about $10.9 million). An estimated 310 investors are covered by the agreement.

According to regulators, Sun Hung Kai does not admit wrongdoing or liability under the deal.

The SFC's investigation raised concerns about the adequacy of Sun Hung Kai's due diligence of the products and its training of sales staff. Sun Hung Kai also agreed to an independent audit of its compliance systems.

Many of the products, while labeled "mini-bonds," weren't actually straightforward corporate bonds but rather complex derivative products. Investors have complained bank salespeople were misleading and failed to fully explain how risky the products were.

Peter Wong, chairman of the Hong Kong Association of Banks, said the group didn't have details about the reprimand of Sun Hung Kai. "We are working very hard on the issue of minibonds," Wong said, without commenting further.

More than 40,000 Hong Kongers bought Lehman-backed investment products through banks and brokerages, with the total outstanding value of the products estimated at HK$20.2 billion ($2.6 billion), according to the Hong Kong Monetary Authority, the territory's de facto central bank.

The majority of the investments, about HK$12.6 billion ($1.6 billion), were mini-bonds.

___

Associated Press reporter Dikky Sinn contributed to this report.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.