Former Lehman Brothers Holdings Inc chief executive Richard Fuld asked a judge on Friday to toss out an investor lawsuit that accused him and other Lehman officials of failing to disclose a controversial Repo 105 accounting technique used by Lehman.
In court papers filed in U.S. District Court on Friday, lawyers for Fuld and other Lehman officials argued the investor class-action lawsuit did not have a basis for trying to turn claims that Lehman's use of the accounting technique hid its true financial picture into securities law violations.
The suit, which also names former Lehman executives Christopher O'Meara, Joe Gregory, Erin Callan and Ian Lowitt, Lehman directors and the firm's outside auditor Ernst & Young , claims Lehman's securities were artificially inflated and that by using the repo technique Lehman executives misrepresented the true amount of assets and debt on Lehman's balance sheet.
In seeking to dismiss the lawsuit, the executives defended Lehman's accounting and said that, while the bankruptcy court-appointed examiner found Lehman may have colorable claims against executives and auditors for undisclosed use of the Repo 105 technique, the report did not conclude those claims also existed under securities laws.
Repo 105 transactions are appropriately reported as sales under (Generally Accepted Accounting Principles), so there was nothing misstated about Lehman's net leverage ratios, the executives attorneys wrote on Friday, also noting Lehman's auditors Ernst & Young had signed off on the company's financials.
Lehman collapsed in September 2008 in the largest bankruptcy in U.S. history. Lehman's stockholders, many of whom were Lehman employees, are expected to be wiped out entirely by the bankruptcy.
The examiner, who was appointed by the bankruptcy court, released a report in March that claimed for the first time that Lehman had used a Repo 105 accounting gimmick to hide its true financial picture before its demise.
Lawyers for the plaintiffs in the securities litigation did not return calls on Friday.
The case is In re: Lehman Brothers Equity/Debt Securities Litigation, U.S. District Court, Southern District of New York, No. 08-05523.
(Reporting by Emily Chasan; additional reporting by Jonathan Stempel; editing by Andre Grenon)