Fighting to recoup investment losses

CARSON CITY -- Nevada's state government will spend $500,000 hiring a law firm to investigate and determine whether to file a lawsuit against a securities investment firm that recommended that the treasurer invest $50 million with the now bankrupt Lehman Brothers banking firm.

But the state Board of Examiners also was warned Tuesday by the attorney general's office that it may need to come back for more money for the Sherman and Howard LLC firm before litigation against the investment adviser is completed.

Stock for Lehman Brothers, a Wall Street bank that failed last year, is now valued at pennies per dollar invested by the state, making Nevada's potential loss $47 million.

State Treasurer Kate Marshall invested $50 million in Lehman Brothers on the advice of its securities lending adviser, Metropolitan West, Deputy Treasurer Steve George said.

Metropolitan West was part of Wachovia, which in turn was acquired by Wells Fargo in December.

"The bottom line is we are spending $500,000 now to get back $47 million," George said. "It could cost more, but you have to spend on the legal side to get your case out there."

George acknowledged the treasurer's office could fail in its effort.

But he said the attorney general's office and private lawyers have advised Marshall the state has a good chance to succeed.

The state is basing its case on advice from Metropolitan West and Wachovia that the $50 million investment was secure.

"We were told repeatedly by our security lending agents that all our investments were fine. We even asked that just prior to Lehman going bankrupt."

In a hearing before the Assembly Ways and Means Committee last month, Marshall said she asked Wachovia about pulling the Lehman investment and was advised not to withdraw the money because the investment was 100 percent secure.

Two days later, the bank filed for bankruptcy.

The treasurer has a similar $75 million investment with Wells Fargo, which matures in August.

George said Marshall has consulted several advisers and has been assured the state's $3.6 billion investment portfolio is safe.

During her appearance before the Ways and Means committee, Marshall said she thought the state could recoup as much as $25 million from Lehman Brothers in bankruptcy court.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.