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CalPERS suit accuses Lehman Bros. of fraud

The state pension fund alleges that the investment house, its former executives and bond underwriters made false statements about losses from risky mortgage-backed securities. Lehman filed for bankruptcy protection in 2008.

February 09, 2011|By Marc Lifsher, Los Angeles Times

Reporting from Sacramento — The nation's largest public pension fund accused Lehman Bros. Holdings Inc., its former top executives and numerous bond underwriters of fraud and making materially false statements about losses from mortgage-backed securities during the financial crisis of 2007 and 2008.

The claims are part of a lawsuit that the California Public Employees' Retirement System, which oversees a pension fund now valued at $229 billion, filed late Monday in U.S. District Court in San Francisco.

While the lawsuit did not specify damages, it noted that CalPERS owned 3.9 million shares of Lehman common stock and about $700 million worth of Lehman bonds at the time that Lehman filed for bankruptcy protection in September 2008.

Lehman filed its bankruptcy, the largest in U.S. history, in September 2008, four days after saying that it would report a third-quarter loss of $3.9 billion and write down the value of its subprime mortgage securities and other assets by $7.8 billion.

The suit alleged that Lehman, under the direction of Chief Executive Richard S. Fuld Jr., "dramatically" borrowed to fund its real estate investment activities from 2004 to 2007, engaging in ever-riskier activity that was not divulged to investors.

CalPERS also named Fuld as a defendant, along with Citigroup Global Markets Inc., Wells Fargo Securities and Mellon Financial Markets.

A lawyer for Lehman could not be reached.

The action against Lehman is the second by CalPERS against major Wall Street players involved in the selling of mortgage-backed securities.

In July 2009, the pension fund sued the three largest financial rating firms — Moody's Investors Service Inc., Standard & Poor's and Fitch Inc. The suit faulted the rating companies for giving coveted top grades to bonds that suffered huge losses from the meltdown of the market for subprime mortgage securities.

The three rating firms have denied wrongdoing.

marc.lifsher@latimes.com

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