OLYMPIA – The Washington State Investment Board on Wednesday filed a lawsuit to recover more than $100 million in losses related to the purchase of investments from Lehman Brothers Holdings Inc.
Among the defendants are former Lehman executives and directors; underwriters for the offerings; and Ernst & Young, the firm’s outside auditor.
According to a news release Wednesday, the lawsuit alleges violations of federal and state securities laws, negligent misrepresentation and breach of fiduciary duty.
Lehman itself is not named as a defendant, as it filed for bankruptcy protection last September.
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“We have a fiduciary duty to pursue recovery of these losses,” Investment Board acting executive director Theresa Whitmarsh said. “It’s our belief that had the defendants been more transparent and accountable, these losses could have been minimized or even avoided.”
Attempts to reach some of the defendants were unsuccessful.
The suit, filed in Thurston County Superior Court, alleges that documents filed in connection with the securities offerings failed to disclose Lehman’s negative returns on troubled mortgages, including subprime loans, and the true value of its mortgage-related assets.
Also, the lawsuit alleges that Lehman’s financial statements failed to comply with applicable accounting standards.
The suit was filed on the Investment Board’s behalf by the Office of the Attorney General and the law firm of Coughlin Stoia Geller Rudman & Robbins LLP. The Coughlin firm was hired for its expertise in federal securities law and securities litigation and is serving as a special assistant attorney general pursuant to a contract with the office, the release said.
Previously, the firm successfully represented the state in a suit to recover losses related to securities fraud at telecommunications giant Worldcom. According to Whitmarsh, the state board also was successful in recovering some assets from Enron.
“We did receive recoveries,” she said in an interview Wednesday. In the Lehman case, she said, “we’re optimistic.”
The suit notes that former Lehman Chairman and CEO Richard Fuld, also a defendant, “received $111.8 million from FY 2003 to FY 2008 in salary, bonuses and restricted stock unit awards.”
Other defendants include Citigroup Global Markets, Wells Fargo Securities LLC, Commerzbank Capital Markets Corp. and Countrywide Securities Corp.
At one point in the 64-page suit, the state alleges that “the borrowers or brokers inflated the income reported on the … ‘liar loans.’ The brokers and mortgage bankers had every incentive to make the loans as they were paid generously no matter whether the loan later went into default or not.”
Even with the loss, the state investment fund remains strong, Whitmarsh said Wednesday.
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