Class Action Settlements: Lehman Brothers
Lehman Brothers was once a major player in investment banking, investment management and trading and as a dealer of U.S. Treasury securities. It declared bankruptcy in 2008 following devastating losses in its stock value, devaluation of its assets by credit agencies and the loss of most of its clientele.
The Lehman Brothers name had been in U.S. financial circles since the 1850s. It was purchased by American Express in 1984 for $360 million and merged with E.F. Hutton in 1988. By 2007, the company had become a victim of the subprime mortgage meltdown and was eventually liquidated in bankruptcy court after it filed for Chapter 11 on September 15, 2008, in the largest bankruptcy filing in U.S. history.
On April 29, 2008, a class action was filed against Lehman Brothers Holdings on behalf of investors who had purchased Lehman securities. More than 17 other class and individual suits have been filed against the company since that time alleging that Lehman Brothers had made materially false and misleading statements that impacted the value of its securities in violation of the Securities Act of 1933.
A class action filed by the Alameda County Employees Retirement Association and the Government of Guam Retirement Fund accused Lehman Brothers of violations of the Employee Retirement Income Security Act of 1974. It alleged that the company failed to disclose Repo 105, an accounting method used to conceal billions of dollars of debt by temporarily exchanging $50 billion of assets into cash before issuing its financial statements. The Repo 105 transactions had the effect of substantially understating the company’s liquidity risk by hiding large amounts of encumbered assets and preventing investors from realizing its exposure to its risky mortgage and real-estate-related assets.
Lehman Brothers contended that the accounting firm of Ernst & Young LLP, its auditors, had approved the accounting method.
During a Congressional Committee on Oversight and Government Reform, Richard Fuld, the head of Lehman Brothers, revealed that he had been paid more than $300 million in salary and bonuses over the past eight years and that executive salaries had actually increased just prior to the Lehman Brothers bankruptcy filing
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