Lehman employees lose appeal over stock losses from bankruptcy

Fri Mar 18, 2016 12:23pm EDT
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By Jonathan Stempel

NEW YORK (Reuters) - Richard Fuld, the former chief executive officer of Lehman Brothers Holdings Inc [LEHLO.UL], is not liable to onetime employees who suffered millions of dollars in losses in company stock as the bank descended into bankruptcy, a federal appeals court has ruled.

By a 3-0 vote, the 2nd U.S. Circuit Court of Appeals in Manhattan said Fuld and a Lehman benefit committee were not legally at fault for letting employees participate in an employee stock ownership plan that invested in company stock.

Friday's decision upheld a July 2015 ruling by U.S. District Judge Lewis Kaplan in Manhattan, and could end one of the last lawsuits stemming from Lehman's September 2008 collapse.

The Lehman plaintiffs lost despite a 2014 U.S. Supreme Court decision involving Fifth Third Bancorp (FITB.O: Quote) that lessened the defenses available to banks in similar cases.

Daniel Krasner, a lawyer for the employees, and Fuld's lawyer, Todd Fishman, did not immediately respond to requests for comment.

Jonathan Youngwood, a lawyer representing benefit committee members, said the ruling "confirms that fiduciaries are not responsible for market and other forces beyond their control."

Lehman workers sued under the Employee Retirement Income Security Act, a law often invoked when the prices of stocks included in corporate investment and retirement plans plunge.

The employees said Lehman's benefit committee breached its duty of prudence by letting them invest in Lehman stock, while Fuld wrongly hid from the committee the imminence of the Wall Street bank's demise.   Continued...

Former Lehman Brothers Chairman and CEO Richard Fuld testifies before the Financial Crisis Inquiry Commission for a hearing about extraordinary government intervention and the recent financial crisis, on Capitol Hill in Washington, September 1, 2010.   REUTERS/Jonathan Ernst