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We have known for more than two years that UBS (NYSE:UBS) misled its customers when it sold them so-called “100% Principal Protection Notes” issued by Lehman Brothers. Now, according to a handful of former UBS financial advisors who have reached out to us, it turns out the firm also misled its own brokers.

Since shortly after Lehman Brothers filed for bankruptcy in September 2008, we have been hearing essentially the same story from dozens of UBS customers from coast to coast. These were conservative investors, many with a long history of investing in CDs, municipal bonds and the like. Their brokers came to them with a pitch for so-called “100% Principal Protection Notes.” This was a no-lose proposition, they said. The customers could potentially realize some modest upside during a rocky market, and the worst that could happen was that once the notes reached maturity, they would get just their principal back with no gain. Many customers were never even told that Lehman was the issuer of the notes, let alone that the notes were just a naked promise—an “unsecured obligation” of Lehman.

We all know what happened next. These deceptively named notes protected nothing, and investors’ entire principal went up in smoke when Lehman folded. Conservative investors whose brokerage firm had convinced them this investment was “guaranteed” were left holding the bag, while UBS pocketed tens of millions in underwriting fees on the $1 billion in Lehman notes it helped issue.

Here’s where things really get interesting. As the two-year anniversary of Lehman’s failure has come and gone, and as UBS’s arbitration losses keep piling up, we have come to learn that UBS customers weren’t the only ones being deceived. UBS executives consistently painted a rosy picture of Lehman, encouraging their financial advisors to continue selling these notes to their best customers and lulling them into holding the notes even when alarm bells began to ring in the spring and summer of 2008.

Brokers have reported that senior management told them to take comfort in the ratings agencies’ “high marks” for Lehman and reassured them that their due diligence was thorough. Meanwhile, the higher-ups must have tracked the market’s true measure of default risk: Credit default swap spreads (in short, the price of insuring against a Lehman default). Even as Lehman’s spreads exploded, the executives apparently soft-pedaled the impact of this information, telling their brokers that UBS believed Lehman was on solid footing.

According to these disillusioned brokers, when they told their bosses that they were worried about Lehman in the wake of the Bear Stearns collapse, the execs reassured them that the firms were entirely different. In truth, they must have seen and worried about the parallels.

As UBS’s own investment bank was reducing its exposure to Lehman—a fact the world now knows from UBS press releases—UBS analysts issued research reports discouraging retail investors from selling out of their Lehman investments—even as late as September 2008!

Some brokers caught on to the executives’ game and got their customers out in time to avoid catastrophe. For most, they bit on their company’s pitch hook, line and sinker. They remained in the dark until it was too late.

These brokers are hopping mad at UBS, their books having been burned as a result of their own firm’s deceit. Along with their (often former) customers, they have joined the club no one wants to be a member of: Victims of UBS.

Disclosure: None