• Repo 105: Lehman used undisclosed repurchase and resale ("repo") transactions, known as "Repo 105" and "Repo 108" transactions (together, "Repo 105"), to temporarily remove tens of billions of dollars from its balance sheet at the end of financial reporting periods, usually for a period of seven to ten days. These transactions lacked any economic substance. While Lehman affirmatively represented throughout the Class Period that it used ordinary repo agreements and recorded these repos as short-term financings, i.e., borrowings, Lehman failed to disclose that (i) it simultaneously engaged in Repo 105 transactions for tens of billions of dollars in assets; (ii) it was recording the Repo 105 transactions as if the underlying assets had been permanently sold and removed from the books; and (iii) it had an obligation to repurchase these assets just days after the end of each quarter. This undisclosed practice had the effect of artificially and temporarily reducing Lehman's net leverage ratio each quarter during the Class Period - an important metric to securities analysts, credit agencies and investors - rendering Lehman's statements concerning net leverage and financial condition materially false and misleading when made and in violation of accounting guidelines.
  
  
• Risk Management: Lehman publicly and consistently promoted its robust and sophisticated risk management system. In truth, however, Lehman regularly disregarded and exceeded its risk limits, or simply raised the limits, as Lehman accumulated illiquid assets.
  
  
• Concentration of Credit Risk: Relevant accounting guidelines require disclosure of significant concentrations of credit risk. Lehman, however, failed to disclose material facts concerning its concentration of mortgage and real estate related assets, preventing investors from meaningfully assessing the Company's exposure to these risky assets.
  
  

In short, as Anton Valukas, the court-appointed examiner in Lehman's bankruptcy proceedings, testified before the House Committee on Financial Services, "the public did not know there were holes in the reported liquidity pool, nor did it know that Lehman's risk controls were being ignored, or that reported leverage numbers were artificially deflated. Billions of Lehman shares traded on misinformation." Ultimately, the truth about Lehman's financial condition and illiquid assets materialized in a series of announcements and events, concluding with Lehman's bankruptcy filing on September 15, 2008.

On April 23, 2010, Lead Plaintiffs filed a Third Amended Consolidated Class Action Complaint for Violations of the Federal Securities Laws ("Complaint"). As defined in the Complaint, the action asserts claims under the Securities Act of 1933 on behalf of all persons and entities, except Defendants and their affiliates, who purchased or otherwise acquired the Lehman securities identified in Appendices A and B to the Complaint and who suffered damages. The Complaint asserts claims against several former Lehman officers (including Richard S. Fuld, Jr., the former Chief Executive Officer and Chairman of the Board), several members of Lehman's Board of Directors, various underwriters for Lehman debt and equity offerings, and against Ernst & Young LLP, Lehman's auditor. Separately, the Complaint asserts fraud claims under the Securities Exchange Act of 1934 on behalf of all persons and entities, except Defendants and their affiliates, who purchased or otherwise acquired Lehman common stock, call options, or who sold put options between June 12, 2007 and September 15, 2008 and who were damaged as a result. The Complaint asserts these claims against certain Lehman insiders, including Fuld, and against Ernst and Young LLP.

Defendants filed motions to dismiss the Complaint on June 4, 2010, Lead Plaintiffs filed their opposition briefs on June 30, 2010, and Defendants filed their reply briefs on July 13, 2010.

On July 27, 2011, the Court issued a 106-page order upholding the majority of the claims, sustaining what the Court referred to as the "core" allegations in the Complaint.

SETTLEMENTS

1) Lead Plaintiffs Achieve Settlements of $516 Million with Officer and Director Defendants and with Underwriter Defendants

On December 2, 2011, Lead Plaintiffs submitted to the Court agreements to settle certain claims asserted in the Action.

First, Lead Plaintiffs submitted a proposed settlement to resolve the claims against the individual officer and director defendants (the “D&O Defendants”) for $90,000,000 in cash (the “D&O settlement”).

Second, Lead Plaintiffs submitted a proposed settlement to resolve claims against certain alleged underwriters of certain Lehman offerings (the “Settling Underwriter Defendants”) for $426,218,000 in cash (the “Underwriter Settlement”).

The combined recovery of $516,218,000 from these proposed settlements is the third largest recovery to date in a case arising from the financial crisis. The settlements do not resolve claims against any other defendants in the Action.

On December 15, 2011, the Honorable Lewis A. Kaplan ordered that notices of the proposed settlements be sent to potential members of the settlement classes. Judge Kaplan scheduled a hearing (the "Settlement Hearing") for April 12, 2012 at 4:00 p.m. at the United States District Court for the Southern District of New York, Daniel Patrick Moynihan United States Courthouse, 500 Pearl St., New York, NY 10007, Courtroom 12D. The purpose of the Settlement Hearing was to determine, among other things, whether the proposed settlements are fair, reasonable and adequate and should be approved by the Court; whether the proposed Plans of Allocation for the settlement proceeds are fair and reasonable and should be approved; and whether Lead Counsel's motion for an award of attorneys' fees and reimbursement of litigation expenses should be approved. 

On April 25, 2012 and May 24, 2012, the Court approved the Underwriter Settlement and D&O Settlement.

For important information about the settlements – including your rights in connection with the settlements and whether you may be eligible to receive a distribution from the settlements – please read the two Notices and the Proof of Claim Form, which can be downloaded from the Case Documents page or http://www.lehmansecuritieslitigationsettlement.com/.

The deadline for filing a Proof of Claim Form for the D&O Settlement and the Underwriter Settlement was May 17, 2012.