Lehman Brothers is still in bankruptcy, making it tough to recover for losses in the 2008 mortgage meltdown. But its former CEO Richard Fuld, and company directors are fair game. California’s state Compensation Insurance Fund sued Fuld, former directors and various securities funds this week saying it invested $81 million in medium-term notes based on allegedly false information from the executives. The state fund is the largest provider of workers’ compensation insurance in California. The fund accused Fuld and others of lying about the firm’s financial status from 2006-2008.
Pile this latest case onto the mountain of lawsuits springing from the losses in the wake of mortgage securities that went bust. In most suits Fuld is not the focus. It is Lehman Brothers, which was purchased by Barclays in a fire sale when Lehman became insolvent during the crisis.
The current variation, filed in federal court in San Francisco, is one of the first cases to go to newly installed Judge Ed Chen. The suit alleges the fund sustained losses on its investment in medium-term notes issued by Lehman between 2004 and 2008, but without saying how much it lost.
The suit does point out that Fuld received $112 million between 2003 and 2007 in salary, bonuses and stock.
The mortgage-backed notes were allegedly bought as a result of the company’s “false and misleading” statements to the Securities and Exchange Commission. The suit maintains that Lehman and its bankers raised billions of dollars offering investment-grade rated notes with allegedly false registration statements.
Lehman failed to disclose the losses and exposure to subprime Alt-A lending and the true value of mortgage-backed assets, according to the lawsuit. Although the suit relates Lehman’s activities it says Fuld took the company much more into the securitized mortgage market and dramatically increased the use of leverage to fund the real estate purchases.
Case: State Compensation Insurance Fund v. Fuld, C11-2400EMC (N. Dist. Calif)