Lehman Brothers Holding Case 9/17/2008
DECEMBER 2011 - According to the Notice:
Multiple settlements have been reached in the class action lawsuit In re Lehman Brothers Equity/Debt Securities Litigation, No. 08-CV-5523-LAK (S.D.N.Y.) (the “Action”). This notice addresses the settlements reached with all but one of the underwriters named as defendants in the Action (the “Underwriter Settlement”).1 The initial settlement was reached with the first group of settling Underwriter Defendants in the amount of $417,000,000 pursuant to a Stipulation of Settlement and Release executed on December 2, 2011 (the “First Underwriter Stipulation”). The second settlement was reached with the second group of settling Underwriter Defendants2 for additional monetary recoveries in the aggregate amount of $9,218,000 pursuant to a Stipulation of Settlement and Release executed on December 9, 2011 (the “Second Underwriter Stipulation” and together with the First Underwriter Stipulation, the “Stipulations”). The Second Underwriter Stipulation largely adopts the terms of the First Underwriter Stipulation. This notice is directed at all persons and entities who purchased or otherwise acquired Lehman securities identified in Appendix A hereto (the “Lehman Securities”) pursuant or traceable to the Shelf Registration Statement and Offering Materials incorporated by reference in the Shelf Registration Statement and were damaged thereby (the “Underwriter Class”).3
The Underwriter Settlement is comprised of $426,218,000 in cash (the “Underwriter Settlement Amount”) plus any interest or income earned thereon (the “Underwriter Settlement Fund”) for the benefit of the Underwriter Class. Estimates of average recovery per damaged security are set forth on Appendix C hereto. Underwriter Class Members should note, however, that these are only estimates based on the overall number of potentially damaged securities in the Underwriter Class. Some Underwriter Class Members may recover more or less than these estimated amounts depending on, among other factors, how many Underwriter Class Members submit claims, when and the prices at which their Lehman Securities were purchased, acquired or sold, and what security they purchased, acquired or sold. In addition, as set forth in Question 19 below, Lead Counsel (as defined below) will seek approval for attorneys’ fees in an amount not to exceed 17.5% of the Underwriter Settlement Amount, plus interest thereon, and for reimbursement of costs incurred by Lead Counsel and other counsel to Named Plaintiffs (as defined below) in connection with commencing and prosecuting the Action and the costs and expenses of the Lead Plaintiffs (as defined below) (collectively, the “Litigation Expenses”) in an amount not to exceed $2.5 million, plus interest thereon. The total amount of Litigation Expenses awarded by the Court will be paid to Lead Counsel from the D&O Settlement and the Underwriter Settlement in pro rata amounts. If the Court approves Lead Counsel’s application for attorneys’ fees and Litigation Expenses (as set forth in Question 19 below), the estimated average cost per damaged security will be as set forth on Appendix C hereto.
If the Underwriter Settlement is approved by the Court, it will result in (i) the distribution of the Underwriter Settlement Fund, minus certain Court-approved fees, costs and expenses as described herein, to investors who submit valid claim forms; (ii) the release of the Settling Underwriter Defendants (as defined below) and certain other related parties, as identified in Question 1 below, from further lawsuits that are based on, arise out of, or relate in any way to the facts and claims alleged, or that could have been alleged, in the Action; and (iii) the dismissal with prejudice of the claims against the Settling Underwriter Defendants. The Underwriter Settlement also avoids the costs and risks of further litigation against these defendants.
The Underwriter Settlement does not resolve claims against any other defendant in the Action, and the Action will continue against Ernst & Young, LLP (“E&Y”), Lehman Brothers Holdings Inc.’s outside auditor during the relevant time period, and the remaining, non-settling underwriter defendant, UBS Financial Services, Inc. (the “Non-Settling Defendants”). Please Note: The Underwriter Settlement is separate and apart from the D&O Settlement, the proposed $90 million settlement Lead Plaintiffs reached with certain of Lehman’s officers and directors during the relevant time period. You should have received a notice for the D&O Settlement along with this Notice. See Question 6 below for more details. You are not automatically in both settlements as they cover different securities in some instances, so you should read both notices to determine if you are eligible to participate in each settlement.
DECEMBER 2011 - Proposed settlement with the Lehman underwriters for $417 million.
SEPTEMBER 2008 - According to a press release dated September 19, 2008, a class action was filed against the financial adviser, the underwriter, and the trustees of the Reserve Fund (”Reserve Fund” or the “Trust”). The action was brought on behalf of investors who owned shares in any class of the Primary Fund (or the “Fund”), a series of the Reserve Fund, who had not requested redemption of their shares by 3 p.m. E.S.T. on Tuesday, September 16, 2008.
The Reserve Fund is an investment trust organized under Massachusetts law, headquartered in New York City. The Trust consists of Mutual Funds, of which the Primary Fund is a series. The Primary Fund is a money market mutual fund that is required, by law, to invest in only the highest quality securities and debt obligations. The complaint alleges that in violation of its legal obligations, as imposed by the Investment Company Act and the SEC’s Rule 2A-7 thereunder, the Primary Fund had invested in, and continued to invest in, approximately $785 million in commercial paper and other debt obligations issued by Lehman Brothers Holdings, Inc. (”Lehman”) (Pink Sheets:LEHMQ). As Lehman’s financial difficulties mounted in recent months, its debt obligations became high-risk securities that were inappropriate for money market funds to hold.
The Complaint further alleges that by Friday, September 12, 2008, Lehman’s financial situation had become desperate; yet defendants continued to hold the debt obligations. On September 15, 2008, when Lehman filed for bankruptcy, defendants were still holding onto $785 million of the Company’s debt obligations, which were now worthless. By the afternoon of September 16, defendants had allowed about a dozen institutional investors to withdraw a total of over $40 billion from the fund, at the “net asset value” price of $1.00 per share. That is the per share value that the Reserve Fund, like virtually all money market funds, strives to maintain. However, the shares were actually worth less than that when they were redeemed. It was not until the markets closed on September 16 that defendants issued a press release announcing that the net asset value of the fund had belatedly been reduced to 97 cents per share, a shocking and extremely rare development known in the industry as “breaking the buck.” The press release announced that investors who had sought redemption up to 3 P.M. that day would receive $1 per share, but that subsequent requests for redemption would be at the 97 cents price, and that payments for those shares would be withheld for up to 7 days.
As spelled out in the complaint, defendants violated Section 8 of the Investment Act of 1940 by deviating from the Fund’s fundamental investment objectives without approval by the shareholders of the Fund and by allowing massive redemptions by a favored few investors at an inflated price of $1.00 per share. These actions gave an unfair advantage to certain fund investors at the expense of others, and in a manner which violated the Fund’s stated procedure as well as defendants’ fiduciary obligations to investors.