The Advisors' Blog

– Linda DeMelis, CompensationStandards.com

The county of San Mateo, California, which lost $150 million in the recent bankruptcy of Lehman Brothers, has sued officers and directors of Lehman to recover some of their losses. The county is also suing Ernst & Young, Lehman’s auditors. The complaint – which is posted in our “Compensation Litigation” Portal – alleges that Lehman executives, in its public filings, during investor calls and at investor conferences, implied that the risks of its “Alt-A” mortgage business were adequately hedged. The executives’ public statements were not consistent with their more pessimistic internal memos, and of course, they look remarkably bone-headed now that the company has collapsed.

Since the county knew that Lehman was involved in a risky business, it essentially has to argue that Lehman’s disclosures didn’t scare them enough, which seems like a long shot.

Lehman executives recently had to appear before Congress to explain to skeptical lawmakers why Lehman’s failure wasn’t their fault. That’s part of the emotional appeal of this case, along with CEO Fuld’s huge compensation ($300 million) and vast personal fortune, which is mentioned several times in the complaint. The case bears watching to see if it survives summary judgment.