It’s been eighteen months since the New York-based investment firm Lehman Brothers collapsed but county and local official still seethe at the very name.
The frustration and anger associated with the firm burn not just because of the large amount of local taxpayer funds that vanished as Lehman declared bankruptcy but also because of a profound sense of being treated unfairly.
Rob Gaskill, who arrived on the coast as the new superintendent of schools only a few months before the economy began its downward spiral, sums up the feelings of many: “We followed all of the rules–had our money deposited with the county treasurer as required by law–and then watched the federal government pick ‘winners and losers’ in the aftermath of the collapse of Wall Street.”
Gaskill is referring to the case-by-case policies of the federal government at the time which bailed out many firms but let Lehman fail, resulting in a loss to the Cabrillo Unified School District of $1.5 million.
As Lehman tries to emerge from bankruptcy with many of its key assets sold off and the remainder re-organized into a new company, county officials still hold out hope that some of the lost funds might be recovered in the end.
Rich Gordon, a member of the five-person San Mateo County Board of Supervisors says that “a suit has been filed on behalf of San Mateo County and the investors in the San Mateo County pool. This suit is against the former Lehman executives.”
That is to say, the county is suing the former Lehman executives personally.
While Lehman the firm has little in the way of assets, former Lehman executives kept their money. A Harvard study released in late 2009 pegged the take home pay for the top five Lehman executives from 2000-2008 at $1 billion.
“It seems clear that the loss suffered in San Mateo County and by so many others resulted from management actions. I believe these people should be held accountable,” says Gordon.
The top lawyer for San Mateo County, Michael Murphy, puts it even more forcefully: “Lehman Brothers, and the executives responsible for managing the assets of Lehman Brothers and protecting its investors, actively and wrongfully hid their serious financial problems from the investing public, including the County of San Mateo and hundreds of other public agencies.”
Murphy points out that the lawsuit is not only against the former executives but also against the auditing firm of Ernst & Young which gave Lehman a clean bill of health (please visit the source for more information).
These hopes were given a big boost last week by the release of a report by Anton R. Valukas, a court-appointed examiner who was assigned the task of sorting through the Lehman mess. To the surprise of many the examiner produced a 2,200 page report that laid bare the inner workings of the firm and all but accused executives of criminal misconduct. As for Ernst & Young, the auditing form, Valukas wrote that sufficient evidence exists to sue the firm for malpractice.
Not all local districts were affected by the Lehman failure. While the Coastside Fire Protection District sffered significant losses, the Montara Water and Sanitary District did not have investments in Lehman (keeping its money instead in the California Local Agency Investment Fund which Scott Boyd, a director at the district, calls a “deliberately conservative” fund).
David Dickson, the general manager at Coastsideside County Water District put it most succinctly when asked if CCWD was involved in lawsuits against Lehman: “No losses, no lawsuits.”
No matter the eventual outcome of the lawsuits, county and local governments are feeling the financial pressure like never before. The County, which lost $155 million at Lehman, recently announced a $150 million budget deficit with large staffing cuts on the way.
At CUSD Rob Gaskill faces a bewildering array of revenue losses, of which that from Lehman is not the largest. But still it seems to sting the most.
“I suppose we could be upset with the federal government that continues to underfund the Individuals with Disabilities Education Act (IDEA) that encroaches on our district budget each year by about $2.5 million,” says Gaskill, “or the state for ‘deficiting’ the money it owes its schools as part of its Revenue Limit obligation, about $2.5 million currently for CUSD, or even the $1.6 million the state owes CUSD for performing the myriad of mandated tasks that are legislatively ‘dropped’ on schools that it will pay ‘some day’ but, to tell you the truth, I am probably galled the most by the $1.5 million we ‘lost’ in the Lehman Brothers fiasco.”