US - Washington State Investment Board (WSIB) is suing Lehman Brothers' officers and directors, its investment bankers and its accountants to recoup more than US$100m lost in Lehman's securities.
WSIB purchased the notes from 2006 to 2008. The suit alleges Lehman and its bankers "raised billions of dollars in several offerings of investment-grade rated notes by means of a false and defective Registration Statement and Prospectuses".
It added such offering documents failed to disclose Lehman's losses and exposure in connection with the bank's subprime and Alt A-a form of mortgage where the risk profile falls between prime and subprime- lending activities and the true value of the bank's mortgage-related assets.
Besides Lehman's management - including its then chairman and chief executive Richard Fuld - the suit involves the 17 investment banks from both Europe and the US, which underwrote Lehman's investment offering.
In addition, Lehman's auditor Ernst and Young is being accused of having "repeatedly issued unqualified audit reports on Lehman's annual financial statements."
In a statement, WSIB acting executive director Theresa Whitmarsh said: "We have a fiduciary duty to pursue recovery of these losses. It's our belief that had the defendants been more transparent and accountable, these losses could have been minimized or even avoided."
The $61.3bn WSIB is represented by law firm Coughlin Stoia Geller Rudman & Robbins. Previously, the law firm represented the Washington state in a suit to recover losses related to securities fraud at WorldCom.
The suit against Lehman was filed yesterday in Thurston County Superior Court.
In March, the state of New Jersey sued several members of Lehman Brothers over losses incurred by the state pension fund following the bank's failure last year.
At the time, NJ said its pension fund lost over $100m and charged the bank with violations of NJ and federal securities laws, negligent misrepresentation, breach of fiduciary duty, fraud and aiding and abetting (Globalpensions.com: March 19).
Ernst and Young did not immediately return calls for comment.
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