Lawyers for investors in Lehman Brothers settled with several underwriters for about $417 million. Given that Lehman has been mired in Chapter 11 bankruptcy since its collapse in September 2008, leaving lawyers for the investors to pursue dwindling directors and officers’ insurance funds and to assert claims against Lehman’s well-defended underwriters, this is not a bad result.
The proposed settlements, which still need approval from Manhattan federal district court judge Lewis Kaplan, include $417 million from about two dozen underwriters including Bank of America, Wells Fargo, and Morgan Stanley, and a previously reported $90 million agreement with former directors and officers, including former CEO Richard Fuld.
According to the plaintiffs’ motion for court approval of the settlements, preliminary settlement discussions began in late 2010. A major turning point in the case came in June, when Judge Kaplan largely denied defense motions to dismiss an amended complaint. The complaint borrowed heavily from Jenner & Block chairman Anton Valuka’s examiner’s report and its revelations about Lehman’s “Repo 105” accounting gimmick, which allegedly helped the bank understate its leverage.
“While it perhaps may be said with some assurance that Lehman, given the assets it held, would have been in trouble in any case, it is entirely plausible to conclude also from the facts alleged in the [amended complaint] that the misleading picture that Lehman portrayed played a material part in keeping its stock higher during the class period than it otherwise would have been and, in consequence that some part of the losses the plaintiffs suffered was attributable to the alleged fraud,” Judge Kaplan ruled.
