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Thursday, May 14, 2009

Department of D'oh: iShares Shareholders File Suit Following Company's Decision To Invest 11 Percent of Assets in Lehman Bros. -- On Day Before Lehman's Collapse

Posted By on Thu, May 14, 2009 at 7:30 AM

click to enlarge monopoly_man_broke.jpg
What happens to the document you spend hours perfecting -- until your computer crashes and burns? Sure, the data is lost -- but, existentially, where does it go? Is there a special corner of the universe chock full o' unsaved term papers and other e-casualties?

If so, perhaps that's where peeved shareholders of the San Francisco-based management investment company iShares should look. A class action suit filed Tuesday in local district court seeks redress for what could arguably be characterized as one of the worst investment decisions in modern history: While, the suit notes, iShares investors were attracted by the firm's "conservative" outlook and "low-risk" investment strategy, somehow 11 percent of the company's net assets were invested in Lehman Brothers bonds on Sept. 12 of last year. A mayfly's life later, Lehman essentially imploded. Imploding with it, notes the suit, was $395.4 million of iShares' money. Good Lord, where does it all go?

While losing money has morphed of late from an actionable offense to the national pastime, the plaintiffs -- embodied by Tennessean Kathryn Squires and other shareholders -- accuse the San Francisco-based Barclay's subsidiary of violating Congressional rules regulating investment companies -- rules imposed to supposedly prevent just such a fiasco as the Lehman loss. 

In a nutshell, the suit evokes the Investment Company Act of 1940, and claims iShares and its ilk are mandated to avoid "overly concentrating its assets in bonds issued by banks shaken by the financial crisis." Yet, "This is just what the Fund did. Defendants deviated from this fundamental policy by diverting approximately 11 percent of the Fund's total net assets into a wholly speculative purchase of distressed, subordinated debt of failing bank Lehman Brothers, approximately one business day before Lehman filed for Chapter 11 bankruptcy." Without getting overly technical, plaintiffs claim that's too damn much money invested too damn riskily in too damn small a basket.

This is a 25-page lawsuit, but, you know, this summary works decently for the whole shebang: You broke the rules to recklessly invest too much money in a narrow, risky move -- what were you thinking? You can see the suit here, if you're not into the whole brevity thing.

You can't squeeze blood from a turnip -- and iShares' total loss in its Lehman investment leaves them unable to purchase even a single turnip to squeeze. So, what do the plaintiffs want? Well, they want the companies and individuals they claim broke the law and behaved incompetently to be punished. And they want "compensatory damages," whatever those may be.

Well, good luck with that. In any event, here's a recipe for turnip mashed potatoes. You could do worse -- and it appears you already have.

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About The Author

Joe Eskenazi

Joe Eskenazi

Joe Eskenazi was born in San Francisco, raised in the Bay Area, and attended U.C. Berkeley. He never left. "Your humble narrator" was a staff writer and columnist for SF Weekly from 2007 to 2015. He resides in the Excelsior with his wife, 4.3 miles from his birthplace and 5,474 from hers.


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