Calif. Judge Won’t Dismiss Lawsuit Against Lehman Brothers

Oct. 18–A federal judge this week refused to dismiss a lawsuit filed by San Mateo County and other public entities against Lehman Brothers alleging securities violations and accounting fraud that caused the county to lose $155 million in investments when the bank went bankrupt in 2008.

"For us, it's a great development," County Counsel John Beiers said Tuesday. "It will allow us to move forward with the case and hopefully achieve justice on behalf of the county taxpayers."

Monday's ruling by U.S. District Court Judge Lewis Kaplan in New York is the first decision in the United States that addresses individual investors' claims since the firm's financial collapse, according to a news release issued Tuesday on behalf of the county by Cotchett, Pitre and McCarthy, LLP, the Burlingame-based law firm handling the case.

The lawsuit accuses Lehman Brothers' executives of misleading investors about the company's financial health and engaging in "accounting gimmicks," according to the release. The other plaintiffs are Monterey County; the cities of Burbank, Ventura and Auburn; the Contra Costa Water District, Vallejo Sanitation and Flood Control District; and Zenith Insurance Co.

Although Kaplan dismissed some of the lawsuit's assertions, his ruling allows San Mateo County and the other entities to try to void former Lehman CEO Richard Fuld's alleged fraudulent transfer of assets to his wife Kathleen Fuld when he sold her a multimillion-dollar Jupiter

Island, Florida, residence for $100.

Meanwhile, the county has started getting some of its money back this year through a separate channel — Lehman's bankruptcy proceedings. Of the $25 million to $35 million it expects to get that way, the county so far has collected $15.2 million, Beiers said.

San Mateo County's$155 million loss came from its investment pool, which included contributions from local K-12 schools and community colleges. The school districts filed their own lawsuit against the county in an effort to recoup their losses; in 2011 a San Francisco Superior Court judge dismissed their case, but the schools have appealed.

Email Bonnie Eslinger at beslinger @dailynewsgroup.com; follow her at twitter.com/bonnieeslinger.

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