A federal jury Monday held Lehman Bros. Holdings Inc. accountable for fraud at an Irvine mortgage company it helped finance, saying the investment bank aided and abetted a First Alliance Corp. scheme to cheat borrowers.
The 10-person jury in Santa Ana said Lehman not only knew that First Alliance engaged in fraud but also “substantially assisted” the deception.
The jurors awarded $51 million in damages to about 4,500 borrowers, assessing 85% to First Alliance and its executives and 10%, or $5.1 million, to Lehman.
For Wall Street firms doing business with shady lenders, the verdict is a wake-up call, experts said. Critics of what they see as Wall Street greed and arrogance praised the jury’s decision.
“I think Wall Street will take notice. This is kind of a warning shot across the bow,” said Kurt Eggert, a Chapman University associate law professor who has represented victims of lending abuse and has published law-journal articles about sub-prime mortgage securities.
First Alliance founder Brian Chisick and his company last year settled fraud charges filed by the Federal Trade Commission for about $75 million and won’t have to pay the damages assessed Monday.
The jury apportioned 5% of the damages to MBIA Insurance, which had insured First Alliance’s mortgage securities, but because it wasn’t a defendant, it won’t have to pay.
Lehman attorney Helen L. Duncan portrayed the size of the damage award as a win for Lehman but said it would appeal. The firm said in a statement that its employees were “never aware of any wrongdoing that may have been committed by individual loan officers at First Alliance.”