CalPERS recovers $12.75 million in lawsuit over collapse of Lehman Brothers

Published: Tuesday, May. 6, 2014 - 12:00 am
Last Modified: Tuesday, May. 6, 2014 - 12:15 am

More than five years after Lehman Brothers filed for bankruptcy and sent shock waves through the global economy, CalPERS is still working the court system to recover its mammoth losses.

On Monday, the California Public Employees’ Retirement System announced another settlement. Ernst & Young, which audited Lehman’s books, has agreed to pay $12.75 million to the big pension fund.

The latest settlement means CalPERS has recouped about $118 million of its losses from Lehman’s implosion, including about $90 million recovered directly from the Lehman bankruptcy case.

That represents a fraction of the more than $703 million in losses CalPERS cited in a 2011 lawsuit. However, CalPERS spokesman Joe DeAnda said Monday that the pension fund’s losses have now been estimated at around $300 million.

The losses stemmed from Lehman stocks and bonds CalPERS purchased over a 15-month period ending in mid-September 2008, when the investment bank filed for bankruptcy.

Many big institutional investors teamed up for a class-action suit against Lehman’s underwriting firms, senior executives and others believed responsible for the investment bank’s implosion. CalPERS, however, opted out of the class action and filed its own lawsuit in February 2011.

The lawsuit accused the defendants of hiding Lehman’s high-risk strategies from investors, particularly its exposure to toxic mortgage securities. The defendants “downplayed Lehman’s exposure to risky real estate assets” and used “an accounting gimmick” to shield billions of dollars in debt from public view, the lawsuit said.

Ernst & Young is the fourth defendant to settle with CalPERS. Earlier, the pension fund recovered $11 million from former Lehman officers and directors and $4.6 million from two underwriters, Cabrera Capital and Loop Capital Markets.

In a statement, CalPERS said the Ernst & Young recovery “is far larger” than what it would have made it had stayed in the class-action suit.

Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.

Read more articles by Dale Kasler

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