Bloomberg News

N.J. Faults Lehman’s ‘Piecemeal’ Use of Directors’ Insurance

July 13, 2011

(Updates with stock losses in third paragraph.)

July 13 (Bloomberg) -- The New Jersey Treasury faulted bankrupt Lehman Brothers Holdings Inc. for the “piecemeal consumption” of its directors and officers insurance to pay some claims ahead of others.

The state, whose lawsuit against former Lehman Chairman Richard Fuld and other executives was put on hold by the bankruptcy, said the so-called automatic stay is supposed to stop creditors “from dismantling the estate in a piecemeal fashion.” It filed the comments in U.S. Bankruptcy Court in Manhattan yesterday after Lehman asked a judge to let it pay $15 million out of its policies.

The New Jersey Treasury’s investment division lost more than $192 million of a Lehman stock purchase of $385 million, according to the state’s amended lawsuit filed in U.S. District Court in April. It sued the defunct firm’s former executives, saying, “Lehman made numerous materially false or misleading statements” about its financial condition in 2007 and 2008, when it filed bankruptcy.

The $15 million insurance payment would go to U.S. Airways Inc., which won a securities claim filed with the Financial Industry Regulatory Authority against three former Lehman officers and employees --Roland Hansalik, George Perry and Joseph Arena, according to a court filing by their lawyers. According to New Jersey, it would be at least Lehman’s fourth payment from a limited pool of funds.

‘Full Benefit’

“The individuals and entities who serendipitously reach a final judgment before other claimants will receive the full benefit of the insurance policies while other plaintiffs are left with nothing,” the state said.

Kimberly Macleod, a Lehman spokeswoman, said she couldn’t immediately comment.

The bankruptcy is In re Lehman Brothers Holdings Inc., 08- 13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The New Jersey suit is State of New Jersey v. Richard Fuld, 10-cv-05201, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Charles Carter, Stephen Farr.

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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