State files suit to recoup investment losses

Board that oversees state retirement funds says Lehman Brothers failed to disclose its investments in troubled assets

OLYMPIA – The Washington State Investment Board (WSIB) filed a lawsuit Wednesday to recover more than $100 million in losses related to its purchase of investments from Lehman Brothers Holdings, Inc.

The defendants are former Lehman executives and directors, underwriters for the offerings, and Ernst and Young, the firm’s outside auditor.  The lawsuit alleges violations of federal and state securities laws, negligent misrepresentation, and breach of fiduciary duty.  Lehman is not named as a defendant because the firm filed for bankruptcy protection in September 2008. 

“We have a fiduciary duty to pursue recovery of these losses,” said WSIB Acting Executive Director Theresa Whitmarsh. “It’s our belief that had the defendants been more transparent and accountable, these losses could have been minimized or even avoided.” 

The suit, filed in Thurston County Superior Court, alleges that documents filed in connection with the securities offerings failed to disclose Lehman’s negative returns on troubled mortgages, including sub-prime loans, and the true value of its mortgage-related assets.  In addition, the lawsuit alleges that Lehman’s financial statements failed to comply with applicable accounting standards.

The suit was filed on WSIB’s behalf by the Office of the Attorney General and the law firm of Coughlin Stoia Geller Rudman & Robbins LLP.  The Coughlin firm, hired for their expertise in federal securities law and securities litigation, is serving as a special assistant attorney general pursuant to a contract with the AGO. Previously, the firm successfully represented the state in a suit to recover losses related to securities fraud at telecommunications giant Worldcom.

WSIB is responsible for the investment and management of public trust and public employee retirement funds. It invests for 17 retirement plans that benefit 450,000 public employees, teachers, school employees, law enforcement officers, firefighters and judges. WSIB also manages investments for 22 other public funds that benefit industrial insurance, colleges and universities, those with developmental disabilities, and wildlife protection.  The agency also manages a public employee deferred compensation program that supplements other retirement benefits.

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Contacts:
Janelle Guthrie, Director of Communications, (360) 586-0725
Liz Mendizabal, WSIB Public Affairs Director, (360) 956-4616