A U.S. federal judge on Friday dismissed a lawsuit by former Lehman Brothers Holdings Inc employees seeking to hold onetime Chief Executive Richard Fuld liable for their retirement plan losses as the Wall Street bank plunged into its 2008 bankruptcy.
U.S. District Judge Lewis Kaplan in Manhattan rejected claims that Fuld breached an obligation to share what he knew about Lehman’s fast-deteriorating finances with officials who oversaw the plan, where Lehman stock was an investment option.
The judge also rejected claims that those officials breached their fiduciary duty to employees by letting them invest in Lehman stock, resulting in millions of dollars of losses.
Investors said the officials ignored mounting public concern about Lehman’s health, failed to explore whether hidden risks made the stock unsafe, and did not consider whether “special” circumstances, including a regulatory ban on short sales of large bank stocks, made the share price unreliable.
“The true objects of plaintiffs’ ire may well be the Lehman executives whom plaintiffs allege made material misstatements regarding the financial health of the company to the detriment of participants in the securities markets,” Kaplan wrote.
Nonetheless, he said the federal Employee Retirement Income Security Act “is not the statutory mechanism to pursue such claims.”
ERISA lawsuits over the inclusion of company stock in retirement plans are common after stock prices suffer large or surprise declines.
Kaplan previously dismissed two versions of the lawsuit, but revisited it after the U.S. Supreme Court in June 2014 lessened the defenses available to banks in similar cases, in a lawsuit involving Cincinnati-based Fifth Third Bancorp.
Mark Rifkin, a lawyer for the Lehman employees, called the decision “disappointing” and said he anticipates an appeal.
Fuld’s lawyer Todd Fishman did not immediately respond to requests for comment.
Jonathan Youngwood, a partner at Simpson Thacher & Bartlett representing the plan officials, said: “We’re very pleased. I hope for my clients’ sake that it is over.”
Lehman filed for Chapter 11 protection on Sept. 15, 2008, helping precipitate that year’s global financial crisis. Its bankruptcy remains the largest in U.S. history.
In a May 28 speech, Fuld broke years of public silence over Lehman’s collapse, maintaining that “Lehman Brothers in 2008 was not a bankrupt company.”
The case is In re Lehman ERISA Litigation, U.S. District Court, Southern District of New York, No. 08-05598.
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