Lehman Underwriters Agree to $417 Million Securities Suit Settlement

Lehman Underwriters Agree to $417 Million Securities Suit Settlement

With the addition of a $417 million settlement involving Lehman Brothers' offering underwriters, the pending settlements in the Lehman Brothers securities class action lawsuit now total $507 million. Nate Raymond's December 6, 2011 Am Law Litigation Daily article discussing the underwriters' settlement can be found here. A copy of the December 2, 2011 settlement stipulation in the underwriter's settlement can be found here.

As discussed at length here, earlier this year the former Lehman executives who were defendants in the securities class action lawsuit reached an agreement to settle the claims against them in the suit for $90 million. The executives' settlement, if approved, is to be funded entirely with D&O insurance. The plaintiffs' motion to the court for approval of the settlements can be found here.

The motion papers explain that the $417 million settlement with the underwriters was the result of mediation and over six months' negotiation. The participants in the underwriter settlement include over 40 offering underwriters. The settling underwriters are listed in footnote 2 of the motion papers. The lineup makes for some interesting reading, as it almost reads like a casualty list from the credit crisis. Not only is Lehman Brothers not around any more, but neither are many of its underwriters. Some have been merged out of existence, and among the survivors are many that are only around as a result of the kind of massive government bailout that Lehman alone was forced to do without.

The settlement does not include Lehman's auditor, Ernst & Young. As discussed here, Lehman's accounting was the subject of sharp criticism in the report of bankruptcy examiner. The examiner referred to the companies now infamous "Repo 105" transactions as "balance sheet manipulation." The examiner's report also states that there may be a "colorable claim" against the company's auditor on the grounds that it "did not meet professional standards" for its "failure to question and challenge improper or inadequate as disclosures."

According to the Am Law Litigation Daily article, the settlement also does not include UBS, which according to the article, "is facing different allegations than other underwriters because it underwrote principal protected notes, structured investment products that [the plaintiffs' claim] were guaranteed regardless of Lehman's bankruptcy."

The stipulation does not state whether or not any portion of the $417 million is to be paid by insurance. I was also not able to find in the settlement stipulation how the amount is to be divided among the participating underwriters.

I have in any event added the Lehman underwriters' settlement to my running tally of subprime and credit crisis-related case resolutions, which can be accessed here.

Readers interested in subprime and credit crisis-related securities class action lawsuit settlements will also want to take a look at Alison Frankel's December 6, 2011 post on Thomson Reuters News & Insight (here) about the recent $315 Merrill Lynch MBS securities class action lawsuit. Frankel read the settlement-related filings very carefully, and she has a number of interesting observations about the methodology for calculating damages in the MBS securities cases, which in turn helps to explain how the parties reached their $315 million settlement.

D&O Insurance: Investigative Cost Coverage: As I have frequently noted on this blog, one of the recurring D&O insurance issues is the question of coverage for costs incurred in connection with SEC investigations, particularly with respect to costs before the SEC investigation has become formal.

In a November 21, 2011 memo entitled "When is an SEC Investigation a 'Claim" for Purposes of D&O Coverage?" (here), attorney Joan L. Lewis of the Dickstein Shapiro firm takes a look at these recurring questions, and she compares two recent cases presenting these issues, the Office Depot case (about which refer here) and the MBIA case (refer here).

Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.

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