Lehman Brothers was formerly one of the world’s largest financial services firms and the fourth largest investment bank in the United States. During the Class Period, Lehman was heavily invested in collateralized debt obligations and sub-prime mortgaged backed derivatives. As the subprime mortgage sector began declining, Lehman used accounting techniques called Repo 105 in order to convince investors that it was financially healthy. Through the use of Repos, Lehman removed as much as $50 billion from its balance sheet just days before it was required to report its financial results. Lehman made false and misleading statements regarding the Company’s supposed sophisticated and conservative risk management policies thereby falsely assuring investors that it was highly unlikely that the Company would suffer significantly as a result of the mortgage and credit market meltdown.
After conducting an extensive investigation into Lehman and its executives, Saxena White was the first firm to file a complaint alleging violations of the federal securities laws. Subsequent events, including the largest bankruptcy filing in U.S. history, interjected unique challenges to prosecuting this case–not the least of which was that because Lehman itself was in bankruptcy, damaged shareholders could not recover damages from it.
Despite these formidable obstacles, we continued to prosecute the case. Our efforts paid off. In the spring of 2012, the Court approved a $90 million partial settlement with Lehman’s senior executives and directors, and a $426 million settlement with several dozen underwriters of its securities. After nearly two more years of hard-fought litigation, we reached a $99 million settlement with E&Y, Lehman’s outside auditor, which was approved in the spring of 2014. The $99,000,000 settlement ranks among the largest ever obtained from an outside auditor and is an outstanding recovery for damaged shareholders.