(Reuters) — A unit of UBS A.G. must pay $5.4 million to a former broker who alleged the firm misled its advisers about the financial health of Lehman Brothers Holdings Inc. while recommending they sell its structured notes to clients, a securities arbitration panel ruled.

The $5.4 million includes a rare award of $1 million in punitive damages to the broker, according to a ruling late on Friday by a Financial Industry Regulatory Authority arbitration panel. The panel also recommended erasing the details about 39 arbitration complaints from the broker's public disclosure record filed against UBS Financial Services Inc. by clients who bought the notes, known as principal protected notes, from the broker.

"UBS is disappointed with the panel's decision, and believes it to be legally and factually incorrect. The award is inconsistent with standards of practice and industry rules and regulations," a UBS spokesman said via email. The firm is evaluating its options, including whether to ask a court to overturn the ruling, the spokesman said.

Principal protection notes are fixed-income securities that include a bond and an option component that offers a minimum return equal to the initial investment. They are tailored for risk-averse investors.

The broker, Edward Dulin, worked for UBS in Scottsdale, Ariz., between 2000 and 2008, according to a regulatory filing. He sold Lehman principal protected notes to his clients before Lehman filed for bankruptcy on Sept. 15, 2008. Mr. Dulin represented the notes to his clients using information that UBS included in training materials and prospectuses for its brokers, said Rosemary Shockman, his lawyer in Phoenix. That included telling clients that their principal was protected, Mr. Stockman said.

But the notes Mr. Dulin sold plummeted in value when Lehman filed for bankruptcy. Until then, Lehman had been Wall Street's fourth-largest investment bank.

Mr. Dulin is now a broker for Bank of America Corp.'s Merrill Lynch unit.

Arbitrators included the $1 million punitive damages award in their ruling against UBS because the firm withheld material information about Lehman's "sinking financial condition" and continued to recommend the sale of the notes, according to the ruling. One of the three arbitrators who decided the case disagreed with the punitive damages award, according to the ruling.