Lehman Brothers Holdings, Inc.
SRKW client, the Northern Ireland Local Governmental Officers Superannuation Committee (NILGOSC), was recently appointed as Co-Lead Plaintiff for a class of investors who purchased the publicly traded securities of Lehman Brothers Holdings, Inc. (“Lehman Brothers” or the “Company”) between September 13, 2006 and June 6, 2008 (the “Class Period”). This action alleges substantial misconduct involving Lehman Brothers’ representations regarding its exposure to the collateralized debt obligations (“CDOs”) and sub-prime mortgage markets. When the truth about Lehman Brothers’ financial condition finally reached the market, its stock price sank to $28.47 per share — a stunning decline from the Class Period high of $86.18. Overall, the Company’s wrongful course of conduct wiped out billions of dollars in shareholder value and caused substantial damage to the Class.
The action alleges that Lehman Brothers issued a series of false and misleading statements relating to the Company’s finances that artificially inflated the price of Lehman Brothers’ securities. Specifically, the complaint alleges that during the Class Period, Lehman Brothers was heavily invested in CDOs and sub-prime mortgage backed derivatives and was an aggressive participant in the mortgage-backed securities origination sector. CDOs are a type of asset-backed security and structured credit product constructed from a portfolio of fixed-income assets. When the mortgage and credit markets began to deteriorate, many of the large securities firms reported massive losses and write-downs as a result of investments in CDOs and similar derivative instruments. Despite this tumultuous financial climate, Lehman Brothers made repeated false and misleading statements touting the Company’s sophisticated and conservative risk management policies and assuring investors that it was unlikely that the Company would suffer significantly as a result of the mortgage and credit market meltdown.
For instance, on July 18, 2007, in response to speculation that the Company would face substantial additional losses from sub-prime mortgages above those previously disclosed to the investing public, Lehman Brothers denied the speculation, stating that “the rumors related to subprime exposure are unfounded.” Similarly, in a March 18, 2008 conference call regarding Lehman Brothers’ financial results for the first quarter of 2008 in which the Company reported a profit of $489 million, Lehman Brothers’ Chief Financial Officer, Erin Callan, touted the Company’s superior risk management discipline and long-term capital outlook in declaring that the Company was well-positioned to weather the financial storm. These financial results and statements reassured investors still concerned about the impact the deteriorating credit markets were having on the nation’s financial institutions, particularly in the wake of the collapse of Bear Stearns just days earlier.
On June 2, 2008, Standard & Poor’s lowered its credit rating for Lehman Brothers citing questions about the Company’s financing of its operations. The Company’s shares fell nearly $3, or 8%, in response to that downgrade. The Company faced continuing concerns about its liquidity the following day, as it was forced to deny rumors that it had resorted to borrowing from the Federal Reserve’s “discount window.” But a report that day in The Wall Street Journal that Lehman Brothers intended to raise an additional $4 billion in capital — following upon other significant fund raising earlier in 2008 — heightened concerns about the Company’s ability to access the capital it needed. Lehman Brothers shares fell another $3 per share on June 3, 2008 in response to these concerns.
Finally, on June 9, 2008, the true extent of Lehman Brothers’ exposure to the mortgage and credit market meltdown was finally exposed. That day, the Company issued a press release announcing second quarter results a week ahead of schedule, and disclosed a loss of $2.87 billion — nearly ten times the loss analysts had expected — following write-downs of $3.7 billion tied to mortgage-backed assets. The Company also revealed that it raised $6 billion in capital — 50% more than previously reported — through the sale of common and preferred stock, thus diluting the position of current shareholders. Following that disclosure, Moody’s lowered its rating of the Company from “stable” to “negative”. In response, Lehman Brothers’ share price fell roughly 12%, dropping from $32.29 to close at $28.47.
The action is currently proceeding before the Honorable Lewis A. Kaplan in the United States District Court for the Southern District of New York.