San Mateo County, California has brought claims of Breach of Fiduciary Duties against Directors and Officers of bankrupt Lehman Brothers Holding Inc. The Directors and Officers do not appear to be bankrupt, not in the least. "The suit by San Mateo County's investment pool was filed in California state court in San Francisco against Lehman executives including [CEO Richard] Fuld, directors of the company, and auditor Ernst & Young, alleging fraud, breach of fiduciary duty, negligent misrepresentation and violation of securities laws." William Selway, "Lehman Execs Sued by California County Over Debt Loss (Update 1)" (Bloomberg.com, Thursday, November 13, 2008).
The factual basis for the claims of proximate causation of the County's losses reportedly is that, allegedly, the Lehman Directors and Officers and the auditor concealed Lehman's "mortgage-related losses" that led to Lehman filing for bankruptcy and vastly reduced the value of its Bonds including Bonds in which San Mateo County invested. William Selway, supra; Bloomberg News report edited for publication as "San Mateo County Sues Lehman Execs Over Investment Losses" (Los Angeles Times Online, Friday, November 14, 2008).
Immediately before filing for bankruptcy, Lehman reported that it had $613 Billion of debt. The current Treasury Department and/or Federal Reserve declined to extend financial assistance to Lehman before Lehman filed for bankruptcy in September, 2008, asserting that it had no other choice as a result. The current Treasury Department and Federal Reserve's next decision was to ask for, and receive, a bailout of $700 Billion from the Federal Taxpayer by way of Congress.
San Mateo County's claimed losses are more than monetary. Reportedly, the Community College District lost $25 Million in investments and the Public School System lost $37 Million which may result both in reduced opportunities for students and in fired instructors.
Readers of posts in this space will recall that late last year, the State of Florida dealt with a sudden run on its small government investment fund due to defaulting 'securities' and falling Credit Ratings of the contracting 'guarantors'.
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