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Lehman Aid: Clayton Man Sues to Recover $1M in Bond Losses

The law firm founder alleges fraudulent ratings concerning bonds purchases.

Carey Danis & Lowe law firm founding partner and resident Joseph Danis filed suit Thursday in St. Louis County against Ernst & Young and Moody’s Investors Service.

Danis wants to recover losses of more than $1 million he has incurred as a purchaser of Lehman Brothers bonds rated by Moody’s.

Lehman Brothers was the fourth largest investment bank in the U.S. before it declared bankruptcy in 2008. The Lehman Brothers bankruptcy is the largest in the history of the country and is also thought to have played a major role in the global financial crisis.

Moody’s Investors Service is a credit rating agency that performs international financial research and analysis on commercial and government entities.

In 2004 and 2005, Danis acquired approximately 1.25 million units of Lehman Brothers bonds for approximately $1.17 million. He holds 777,000 units of Lehman Brothers bonds that were acquired for approximately $760,000. The market value of those bonds is approximately $125,000.

Lehman Brothers bonds and notes trade at around 20 cents on the dollar.

According to court documents, Danis alleges Moody’s misrepresented or failed to disclose that it had assigned excessively high ratings to Lehman Brothers bonds backed by risky subprime mortgages.

When the downturn in the housing market triggered rising delinquencies of the subprime mortgages underlying these bonds, Danis alleges, Moody’s maintained its excessively high ratings rather than downgrade the bonds to reflect the true risk involved in owning subprime mortgage-backed bonds.

Danis also alleges Lehman Brothers used an accounting device known as Repo 105 that allowed it to hide substantial divisions or portions of assets and preserved its credit rating.

Repo 105 is an accounting trick in which a company classifies a short-term loan as a sale and uses the cash proceeds from the sale to reduce its liabilities.

Danis also alleges that Ernst & Young knew that Lehman Brothers was employing Repo 105 and failed to disclose Lehman Brothers' unethical and unlawful accounting practices.

Ernst & Young served as the registered public accounting firm for Lehman Brothers and audited its financial statements for the years 2006-08.

Jeffrey Lowe and Jacob Flint of Carey Danis & Lowe are representing Danis and had not returned a call seeking comment.

Ernst & Young managing partner Dan Dolan also had not returned a call seeking comment.

Carey Danis & Lowe has achieved more than $1 billion in recoveries on behalf of clients. The firm focuses its practice on complex litigation with emphasis on pharmaceutical product liability litigation and class-action lawsuits. It has offices in St. Louis; Chicago; Godfrey, IL; and Vero Beach, FL.

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