A federal judge has refused, at least for now, to allow insurers for former officers and directors of Lehman Brothers Holdings Inc. to pay $90 million to settle a fraud lawsuit brought by investors on May 4th. U.S. District Judge Lewis Kaplan, in Manhattan, directed five former officers of the investment bank, including Chief Executive Richard Fuld, to file financial paperwork to help him decide whether the settlement is fair. Judge Kaplan wrote in his order:
Without knowing whether and to what extent these Defendants could withstand a judgment in excess of the insurance money now on the table, the court would be severely handicapped in coming to an informed view on the question before it.
It was pointed out by Judge Kaplan that in class-action litigation, the court “is obliged to be properly informed before approving a class-action settlement.” In recent years, a growing number of federal judges have refused to approve settlements because of a lack of information about their fairness. For example, Judge Jed Rakoff, who is a colleague of Judge Kaplan, in November, voided a $285 million fraud settlement between the U.S. Securities and Exchange Commission and Citigroup Inc. That decision is now on appeal.
Lehman filed for bankruptcy protection on Sept. 15, 2008, in what became a major trigger of that year’s global financial crisis. It emerged from Chapter 11 in March. At press time, Judge Kaplan had not ruled. We will report on his ruling in the July issue. The case is In re: Lehman Brothers Securities and ERISA Litigation, U.S. District Court, Southern District of New York, No. 08-05523.
Source: Insurance Journal
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