A U.S. appellate court on Friday ruled Lehman Brothers Holdings Inc.'s former chief executive isn't accountable for squandering employees' retirement savings on stock that was rendered worthless when the investment bank collapsed into bankruptcy.
A three-judge panel of the Second U.S. Circuit Court of Appeals in New York affirmed the decision by U.S. District Judge Lewis A. Kaplan to dismiss a class-action lawsuit against former Chief Executive Richard Fuld and a Lehman retirement plan committee's directors filed by former Lehman employees, who saw hundreds of millions of dollars in retirement savings disappear when the bank filed for bankruptcy.
The former employees, who sued Mr. Fuld and the other directors under the federal Employee Retirement Income Security Act, failed to convince the appellate panel despite a 2014 U.S. Supreme Court decision involving Fifth Third Bancorp that made it easier for employees to pursue lawsuits against directors over losses to retirement plans containing shares of a company's own stock.
"We agree with the District Court that, even without the presumption of prudence rejected in Fifth Third, Plaintiffs have failed to plead plausibly that the Plan Committee Defendants breached their fiduciary duties under ERISA by failing to recognize the imminence of Lehman's collapse," the court ruled in a 14-page decision.
Defendants' lawyer Jonathan Youngwood, who represented the Lehman committee members who oversaw the plan, said Friday his clients were heartened by the ruling.
"It's been seven years of litigation, we've seen the case dismissed three times on the district court level and affirmed twice at the appellate level," said Mr. Youngwood, of the law firm Simpson Thacher & Bartlett . "We're happy to see it at an end."
Daniel Krasner, a lawyer for the employees, declined to comment. Lawyers for Mr. Fuld and other benefit plan directors couldn't be reached to comment.
The Lehman employees initially sued Mr. Fuld and the plan's other directors following the investment bank's 2008 collapse, arguing their knowledge of the firm's exposure to risky subprime mortgages and the use of accounting moves like the so-called Repo 105 transactions underscored the precarious position of Lehman's business in the spring and summer of 2008.
The retirees claimed the directors failed to run the retirement plan prudently because they continued to purchase Lehman's own stock for an employee retirement fund between the collapse of Bear Stearns in March 2008 and Lehman's chapter 11 filing in September of that year.
Lehman, once the nation's fourth-largest investment bank, officially exited bankruptcy protection in 2012, and its liquidation continues as the estate looks to drastically reduce the tens of billions in claims filed by creditors. The legal sparring among Lehman and its creditors could last years.
Since Lehman emerged from chapter 11 in 2012, the company, which is being overseen by a new board of directors, has paid back tens of billions of dollars to creditors while searching for more funds through lawsuits and settlements. The holding company is winding down and selling off its remaining holdings, a process that is expected to continue for several years.
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