December 29, 2010

Lehman Sued by Its Retirement Plan Participants

Former employees allege billions of dollars of debt improperly concealed

Lehman Brothers' 401(k) retirement plan and its participants sued in September ex-Chief Executive Officer Richard Fuld and other former executives of the defunct firm for failing to disclose Repo 105, a financing method allegedly used to conceal billions of dollars of debt.

Businessweekreported earlier this month that the amended lawsuit, unsealed by a judge Nov. 30, was based partly on a 2,200-page report by Lehman bankruptcy examiner Anton Valukas. The original suit was filed in 2008.

According to the report, the 401(k) plan had $228.7 million invested in the Lehman Brothers Stock Fund, which had 10.6% of its assets in Lehman shares trading at $65.44 each on Dec. 31, 2007. The company’s benefits committee liquidated the fund nine months after Lehman went bankrupt in September 2008 and its stock was worthless, according to Businessweek.

Fuld and other executives “knew or should have known” about Repo 105 and other risks taken by Lehman, “and therefore knew or should have known that the plan’s assets should not have been invested in company stock,” according to the complaint.

The plaintiffs asked the judge to force the executives to “make good” all losses to the 401(k), pay damages equal to the losses, and restore profits that participants “would have made if defendants had fulfilled their fiduciary obligations.”

The article notes Patricia Hynes, a lawyer for Fuld, said her client wasn’t aware of Repo 105.

The lawsuit is In re Lehman Brothers ERISA Litigation, 08- cv-05598, U.S. District Court, Southern District of New York (Manhattan).

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