Superintendent Disappointed in Appeals Court Rejection of Lehman Investment Lawsuit

San Mateo County Superintendent of Schools Anne Campbell said today, "We're obviously disappointed" that a state appeals court rejected a bid by her office and 12 school districts to sue the county over a lost $20 million investment in Lehman Brothers Holdings Inc.

But Campbell said no decision has been made on whether to appeal Thursday's Court of Appeal ruling to the California Supreme Court.

An appeal to the state high court would be the final step in the lawsuit, filed in San Francisco Superior Court in 2011.

"I really don't know at this point," said Campbell, who said representatives of the districts and her office will meet and go over the case with their lawyers before deciding whether to appeal further.

Campbell's office and 12 of the county's 25 school districts sued the county and former county Treasurer Lee Buffington on Jan. 4, 2011, for alleged financial negligence in causing them to lose $20 million when Lehman Brothers collapsed in 2008.

In Thursday's decision, a three-judge Court of Appeal panel in San Francisco unanimously upheld a trial judge's ruling that the county and its treasurer were immune from being sued because their actions were within their discretionary policy duties.

The $20 million lost by the 12 districts was part of a total of $155 million lost by the county when Lehman Brothers failed.

The districts were required by state law to put their money in a county investment pool managed by the treasurer on behalf of a number of county agencies.

The $155 million invested in Lehman by Buffington was 6 percent of the county's total pool. The loss was the largest suffered by any local government agency in the nation in the brokerage company's collapse.

Campbell said "some good things" have come out of the debacle because the Board of Supervisors and current treasurer "took a careful look at investments and guidelines" and tightened up procedures.

Buffington, who served as treasurer and tax collector for nearly 25 years, retired on Jan. 3, 2011, and was succeeded by former deputy treasurer-tax collector Sandie Arnott, who was elected to the top post the previous November. Buffington died at age 81 in December 2011.

Arnott said today, "I think we do a very good job of safekeeping the county agencies' money and we'll continue to do that. I'm satisfied with the decision because we can now put this behind us."

Arnott said one change that has been made is that the treasurer is not allowed to invest more than 5 percent of the pool in any one entity. The county currently has no more than 3 percent in any single investment, she said.

Lehman Brothers' collapse, in the midst of huge losses in its subprime mortgage investments, contributed to a global financial crisis and recession. The company's filing for Chapter 11 bankruptcy protection in September 2008 was the largest bankruptcy in U.S. history.

A shell of the company emerged from bankruptcy last year, but only for the purpose of winding up its financial affairs, selling remaining assets and paying creditors a portion of its debt of more than $300 billion. The amount creditors will eventually receive has been estimated as an average of about 18 percent of the total owed, depending on the type of investment.

San Mateo County has thus far received two distributions from Lehman in April and October 2012, totaling $15.2 million, or about 9.8 percent of the $155 million lost.

Arnott said she has been told to expect three more distributions, but said she didn't know how large the amounts will be.

County Financial Services Manager Joseph Demee said the payments have been proportionately allocated to the agencies that lost money, which means that the 12 school districts have thus far received back about $1.96 million of the $20 million they lost.

The districts that joined the lawsuit are the San Mateo Union High School District, the Cabrillo Unified School District and the Menlo Park, Belmont-Redwood Shores, Burlingame, Jefferson, Ravenswood City, San Bruno Park, San Carlos, Las Lomitas, Portola Valley and Woodside elementary school districts.

— Bay City News

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