N.J. suing Lehman Bros. over pension losses

New Jersey sued executives and directors of Lehman Bros. Holdings Inc. yesterday, alleging that misrepresentations by the now-bankrupt investment bank resulted in losses of $118 million to the state pension system.

With its lawsuit, filed in Superior Court in Mercer County, New Jersey added to a flood of litigation spawned by hundreds of billions in investment losses related to the credit crisis that has crippled the U.S. economy since 2007.

The state's Division of Investment, which manages $59.2 billion for 700,000 active and retired state employees, bought $182 million of Lehman securities last spring, even as Wall Street was reeling from the collapse of Bear Stearns Cos. Inc. and while Lehman was viewed by many as the next to go.

Fund managers were misled by the defendants' failure "to disclose Lehman's exposure to losses from its real estate investments and its failure to write down real estate and mortgage-related assets to reflect their true fair value," according to the 129-page lawsuit.

"Lehman's executives kept telling investors its financial position was solid, when, in fact, the opposite was true," Attorney General Anne Milgram said. "The state bought and held Lehman securities at artificially inflated prices and lost millions, which we seek to recover with this suit."

The state sued eight Lehman executives and nine members of Lehman's board of directors because all such claims against the company were stayed by its Sept. 15 bankruptcy, the largest in U.S. history.

Kimberly Macleod, a spokeswoman for Lehman, declined to comment on the New Jersey lawsuit.

Even as the mortgage market began collapsing in 2007, Lehman awarded huge paychecks to executives, including an "astounding" $40 million to chairman and chief executive Richard Fuld Jr., according to the lawsuit.

New Jersey is not the first public entity to sue Fuld, other Lehman executives, and the firm's auditor, Ernst & Young. In California, the San Mateo County Investment Pool filed a similar lawsuit in November.

State Sen. Joseph Pennacchio (R., Morris), who has been pressing pension officials for information on the failed Lehman investment, applauded the New Jersey lawsuit, but said many questions remained about investment procedures.

"My concern," Pennacchio said, "is that the people who made this investment are still there."