Jim Young/ReutersRichard S. Fuld Jr., Lehman’s former chief, is among those being sued.
Former officials of Lehman Brothers, including Richard S. Fuld Jr., its former chief executive, have agreed to pay $90 million to settle a shareholder lawsuit that accused them of misleading investors about the investment bank’s health in the months leading up to its collapse.
In a court filing on Thursday in Federal Bankruptcy Court in Manhattan, 13 Lehman executives and directors asked a judge to release insurance proceeds that would pay for the settlement.
The potential settlement, which would be the largest to date of a lawsuit against Lehman’s top officials, would not affect the status of any outstanding government investigations of the company and its management.
Three years ago next month, Lehman Brothers filed for the largest corporate bankruptcy in history, an event that helped set off the global financial crisis. The company has been protected from litigation since it filed for Chapter 11 bankruptcy.
But investors filed several lawsuits against former Lehman officials, including one filed by a group of pension funds that asked for billions of dollars in damages, accusing the bank’s senior executives and directors of lying about its financial state.
The pension fund lawsuit contends that Mr. Fuld; Erin Callan, the bank’s former chief financial officer, and others “concealed the true extent of the company’s exposure to subprime-related assets and financial positions, and materially misled the investing public.”
If the bankruptcy judge agrees with the Lehman officials‘ request and releases the insurance proceeds to settle this lawsuit, Mr. Fuld and his former colleagues will not have to bear any personal expense in resolving the case. They would also neither admit nor deny wrongdoing.
Lawyers say it is common for insurance proceeds to cover corporate directors and officers in shareholders’ lawsuits.
“It is unusual for individual executives to pay out of their own pockets,” said Kevin Lacroix, a lawyer and author of the DO Diary blog. “Companies buy insurance for exactly a situation like this where it is insolvent and cannot indemnify their directors and officers.”
Only in rare instances do directors and officers have to make out-of-pocket payments in shareholders’ suits. In 2005, former Worldcom directors paid about $25 million of their own money to resolve a lawsuit with the company’s investors. Enron directors also paid roughly $13 million to settle shareholders’ claims.
In those cases, the companies’ insurance policies did not cover the cost of the settlement. In the case of Lehman Brothers, the investment bank’s policies are valued at a total of $250 million, according to the court filing.
Other litigants are scrambling to settle cases with Lehman before the company’s insurance coffers are empty.
The former Lehman officers have has also asked the bankruptcy court to release $8.25 million in insurance proceeds to settle a separate claim by the state of New Jersey against Mr. Fuld and his former colleagues.
Article source: http://feeds.nytimes.com/click.phdo?i=57abb638ec9990f6d6618c8fcf786c88
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