1:45pm | Reporting by Don Jergler | The City of Long Beach will be getting just over half-a-million-dollars in a partial settlement of a lawsuit against ex-Lehman Brothers Holdings Inc. executives and directors from an investment deal three years ago that cost the city $20 million, City Attorney Bob Shannon said Thursday.
A California lawsuit was over $35 million in securities fraud that allegedly duped a handful of state municipalities, including Long Beach. It was settled earlier this week. Also involved in the suit was Cerritos.
Former Chief Executive Dick Fuld and other ex-Lehman Brothers Holdings Inc. executives settled a securities fraud lawsuit brought by six municipalities that pumped $35 million into the investment bank in the two years leading up to its failure, the Wall Street Journal reported on Wednesday.
The agreement with the U.S. Bankruptcy Court in Manhattan to settle the dispute for $1.05 million, the biggest chunk of which is earmarked for Long Beach’s coffers.
“We’re going to receive approximately $576,000,” said Shannon, who recently returned from San Francisco, where he was taking part in the settlement talks.
This is a partial settlement of the suit, with the settlement only coming from directors and officers, Shannon emphasized.
The suit was brought by the cities of Long Beach, Fremont, Cerritos and South San Francisco and the counties of Alameda and Tuolumne.
The municipalities alleged that the Lehman executives and directors, and Lehman’s accountant, Ernst & Young, failed to disclose information they relied upon to invest $35 million in Lehman between 2007 and 2008, when Lehman went bankrupt.
The failure of Lehman, a global holdings company that filed for bankruptcy in 2008, is considered to be the largest bankruptcy in the nation’s history. Before that filing, Lehman was considered the fourth largest investment bank in the U.S.
“They induced us to enter into a transaction when Lehman was about to enter a bankruptcy,” Shannon said.
He said the investment was made roughly two weeks before Lehman went bankrupt.
The company’s pending liquidation plan would leave little if nothing to recover for equity holders, meaning Long Beach and the investments of the other municipalities is likely to be wiped out, according to the Wall Street Journal report.
“We settled a portion of the case, it’s not finalized,” said Shannon, who was confident the city will get more of its money back—from the bankruptcy case and from its suit against Ernst & Young.
“We will recover some portion of the $20 million though the bankruptcy,” Shannon added. “And the fraud suit will continue against Ernst & Young accountants. We definitely will recover some more money in the bankruptcy, and we expect to prevail again Ernst & Young.”