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Ex-directors challenge Lehman insurance release

Richard Fuld testifies before the Financial Crisis Inquiry Commission for a hearing about extraordinary government intervention and the rece
Richard Fuld testifies before the Financial Crisis Inquiry Commission for a hearing about extraordinary government intervention and the rece

By Nick Brown

NEW YORK (Reuters) - Former directors of a Lehman Brothers Holdings Inc affiliate are objecting to the proposed release of $90 million in insurance funds to settle an investor lawsuit against ex-Chief Executive Richard Fuld and other officials.

Seven former leaders of Structured Asset Securities Corp, Lehman's mortgage-backed securities issuer, said in a court filing on Thursday the release might not leave enough insurance money to cover a settlement in their own investor lawsuit.

Fuld and 13 fellow Lehman executives asked a U.S. bankruptcy judge last month to authorize the release of $90 million under an insurance policy covering directors' and officers' liability. The money would be used to fund a settlement in a lawsuit seeking class action status on behalf of investors in some of the more than $31 billion of equity and debt sold by Lehman beginning in 2006.

The settlement would end a contentious three-year court battle accusing Lehman's directors of painting a misleadingly rosy picture of the company's health in financial statements and securities offerings.

But SASCO officials, facing their own litigation from purchasers of $24 billion of Lehman MBS, panned the release as unfair. They said the Fuld defendants have threatened litigation if any portion of the $250 million policy is used to settle SASCO lawsuits.

Fuld and his fellow defendants are trying to hoard the policy for themselves, planning to use it to quickly resolve multiple claims against them, the SASCO group said in Thursday's filing.

The group said it has a $45 million settlement offer from plaintiffs in the MBS case and would like to fund it using the policy, provided the Fuld defendants do not drain its resources.

"It would be inequitable to permit the equity/debt defendants to expend all of the remaining available insurance proceeds for their own benefit and leave the SASCO defendants without protection," the SASCO group said in its filing.

Lehman filed for bankruptcy with $639 billion of assets, and its collapse was a principal trigger of the 2008 global financial crisis.

While members of Lehman's brass have been sued by investors, there have been no U.S. prosecutions of top company officials.

Lehman's bankruptcy is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555. The debt/equity lawsuit is In re: Lehman Brothers Equity/Debt Securities Litigation, U.S. District Court, Southern District of New York, No. 08-5523. The MBS lawsuit is In re: Lehman Brothers Mortgage-Backed Securities Litigation, U.S. District Court, Southern District of New York, No. 08-6762.

(Editing by Gary Hill)

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