Dick Fuld, the former chief executive of Lehman Brothers, and 13 others have agreed to pay $90m to settle a shareholder lawsuit alleging the former executives and board members misled investors about the bank’s financial health before its bankruptcy filing.
In a motion filed with the bankruptcy court, the defendants have asked the judge for permission to use insurance coverage to pay for the class-action settlement. The judge overseeing the bankruptcy has agreed nine previous times to allow the defendants to dip into directors’ and officers’ insurance to settle smaller lawsuits and pay other fees.
If approved, Mr Fuld and others will not personally bear any of the costs.
The settlement, which was revealed in filings made in US bankruptcy court in New York, does not lift the regulatory scrutiny hanging over the brokerage firm’s executives.
The Securities and Exchange Commission and the justice department are investigating Lehman’s disclosures and its use of an accounting manoeuvre known as Repo 105 that moved $50bn in assets off the brokerage firm’s balance sheet, people familiar with the matter have said.
The SEC may not file any charges against the former Lehman executives if it determines the firm did not violate US accounting standards, people familiar with the matter have said, and may opt instead to issue a public report discussing their behaviour. The former Lehman executives have denied any wrongdoing.
A hearing is set for September 7 in bankruptcy court to hear arguments over the release of insurance monies.
The settlement will also need to be approved by a US District Court judge overseeing the class-action litigation. The insurance companies have agreed to the terms of the settlement, according to the court filing.
The settlement will resolve the biggest investor lawsuit against the former brokerage firm’s executives, including Erin Callan, Christopher O’Meara and Ian Lowitt, all former chief financial officers of the bank, and its board members.
Among the plaintiffs that will receive money are the Alameda County Employees’ Retirement Association, the Government of Guam Retirement Fund and the City of Edinburgh Council as administering authority of the Lothian Pension Fund.