Lehman Brothers Preferred Series “J” Stock

The Lehman Preferred Series “J” stock offering on February 5, 2008 was worth $1.9 billion, with some 76 million shares sold at $25 each. The stock peaked at $25.55 and plummeted within months, leaving investors holding the bag. The lead managers were Lehman Brothers and Citigroup. Other underwriters were Bank of America Securities, Merrill Lynch, Morgan Stanley, UBS, Wachovia and RBC Dain Rauscher. The stock was marketed as being safe and the risk involved was not fully disclosed. Institutional investors and individual investors alike claim the prospectus that was issued prior to the offering was deceptive, false and misleading because it failed to reveal Lehman’s significant exposure to the subprime mortgage market or that they were in desperate need of capital due to deteriorating market conditions. Bankruptcy examiners revealed that Lehman used an accounting strategy called “Repo 105” to minimize their actual repo or short term debt levels prior to coming out with their quarterly report for the public, then after the next quarter began the debt levels were raised back up to properly reflect their risk. Because of the Lehman bankruptcy investors will likely fare better by going through the arbitration process against the firms that marketed and sold the shares.

According to a Wall Street Journal report, this same “window dressing” was done by 18 of the largest banks in the nation for each of the last six quarters. The SEC has initiated an investigation into this practice which has resulted in an agreement to establish rules requiring full disclosure of all debt at the end of the quarter as well as the average and maximum debt during the quarter. SEC Chairman, Mary Shapiro, called the information “critical to the assessing a company’s prospects for the future, and even the likelihood of its survival. This principle was borne out during the recent financial crisis.”

If you suffered losses in Lehman Brothers Preferred Series “J” stock, contact our securities law firm for a free consultation. Cases handled on a contingency basis.

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