The Neuberger Auction: Fodder for ERISA Lawsuit?

New York, NYIt's bad enough when the massive downturn in the stock market robs millions of Americans of value in their mutual funds. However when mutual fund losses are compounded by alleged mismanagement on the part of brokers entrusted to look out for the best interests of investors, violations of mutual fund ERISA comes into play.

At issue is Neuberger Berman Investment funds, and the pending sale of Neuberger by the beleaguered Lehman Brothers. Last week US Bankruptcy Court Judge James Peck approved bidding procedures for the pending sale of Neuberger.

Back in August, before the failure of Lehman Brothers, Neuberger was considered a prized asset in the Lehman Brothers portfolio—an entity Lehman had purchased in 2003 at a cost of $2.6 billion. In August, analysts were estimating that the value of Neuberger Berman ranged from less than $7 billion, to as high as $13 billion. Not a bad return on investment over five years. The New York Times was reporting back in the summer that Lehman's entire market capitalization was approx. $10.5 billion.

Lehman was floating the sale in August in an attempt to raise capital and ease the pressure of unprecedented losses related to real estate. However, it never had the chance to vend the unit on those terms.

Instead, less than a month later Lehman was forced into Chapter 11 bankruptcy—the largest bankruptcy filing in US history. Now, instead of selling an asset that analysts valued at anywhere between $7 billion and $13 billion just a few short months ago, may now be sold off for as little as $2.15 billion. In fact, the $2.15 billion is the offer for the entire Lehman investment management division, an asset that includes Neuberger.

The offer was announced September 29th by private equity firms Bain Capital Partners and Hellman & Friedman, although Carlyle Group and former Neuberger CEO Jeffrey Lane are said to be objecting to the Bain/Hellman bid.

Selling the unit at auction will undoubtedly result in a higher price than that which would be earned through private sale. However, it is reasonable to assume that the value of the sale will be much less than what could have been realized over the summer by a still viable, albeit troubled firm. Now that Lehman Brothers have filed Chapter 11, it is now a matter of taking whatever they can get.

What does this do to investors, and holders of mutual funds? And what are the mutual fund erisa implications for current, and former Neuberger managers who may not have managed the assets with the best interests of the investors at heart, given the troubled atmosphere of its parent, Lehman Brothers?

Asset managers have a fiduciary duty to their investors, and under ERISA guidelines are not to make investment decisions, or asset management decisions if they are not made with the best interests of the investors at play. Their duty, first and foremost is to the investor, and not blindly to the firm.

Funds in the Neuberger Berman family include Neuberger Berman International Portfolio, Neuberger Berman Neuberger Berman Advisers Management Trust,
Neuberger Berman International Institutional Fund, and Neuberger Berman International Fund

Investors with money tied up in the Neuberger funds are investigating possible ERISA lawsuits, given the troubled history of Lehman Brothers, and the potential for imprudent investment decisions given the troubled state of the once-proud firm.

Litigation may not provide peace of mind. But it would afford a degree of payback on the part of investors harmed not only by the plummeting world markets, but also by the alleged actions of fund managers tied to the Neuberger Berman mutual funds.