CalPERS Lambasts Investment Banks' Plan for Lehman

(April 27, 2011) — The California Public Employees’ Retirement System  (CalPERS), the largest public pension fund in the United States, has criticized Goldman Sachs and other creditors of Lehman Brothers Holdings Inc. (LBHI) for treating pensions and retirees who own Lehman bonds “unfairly.”

The $236 billion California state pension’s Chief Investment Officer Joseph Dear said in a statement:

“This plan treats members of pension funds, including retirees who hold LBHI bonds through their pension plans, unfairly,” said Joseph Dear, CalPERS Chief Investment Officer. “We’re disappointed that Goldman Sachs and other big banks are proposing to reward themselves at the expense of bondholders. We want a fair outcome for all stakeholders, which is why the Ad Hoc Group of Lehman Brothers Creditors filed its competing plan in December 2010.”

Goldman Sachs and other Lehman creditors, including Morgan Stanley and Credit Suisse Group AG, filed a liquidation plan for the defunct company. Last year, a group of Lehman bondholders, including CalPERS and also the hedge fund Paulson & Co, filed their own plan to increase payouts to bondholders. The plans differ in how much various creditors would be paid.

Dear had said that the CalPERS-backed plan “would more fairly repay creditors for losses suffered following the collapse of Lehman Brothers in September 2008”.

Rival plans for Lehman are scheduled to be discussed at a June 28 court hearing before US Bankruptcy Judge James Peck in New York.

Earlier this month, Lehman asked a judge to delay a liquidation plan hearing drawn up by bondholders including CalPERS and Paulson & Co. The bank said time and money would be saved if creditors approve the defunct firm’s $61 billion plan. “If the debtors’ plan is confirmed, it will relieve the need for further proceedings and save considerable time and expense,” Lehman said in a filing in US Bankruptcy Court in Manhattan, Reuters reported.

In February, CalPERS sued former Lehman executives and underwriters, alleging that they concealed Lehman’s exposure to subprime loans. CalPERS said in a complaint filed in San Francisco federal court that the executives of 34 investment banks — including Citigroup, Wells Fargo Securities and Bank of New York Mellon — made misleading statements in offering documents for bonds issued from June 2007 to September 2008.

“Lehman’s executives…made materially false statements about its financial condition causing Lehman’s stock and bond prices to be artificially inflated,” the suit stated. “When Lehman’s losses and exposure came to light, the revelations led to severe declines in Lehman’s stock price and ultimately to its bankruptcy. Lehman also had engaged in manipulative quarter-end transactions called ‘REPO 105’ transactions that hid billions of dollars of Lehman’s debt from the public,” the lawsuit asserted, referring to the accounting practice that allegedly allowed Lehman to hide the extent of its use of borrowed money, or leverage.