Lehman execs, auditor must defend investor lawsuit

NEW YORK (Reuters) - Former Lehman Brothers Holdings Inc <LEHMQ.PK> executives, directors, auditors and underwriters on Wednesday lost their bid to dismiss an investor lawsuit seeking to hold them responsible for losses tied to the investment bank's collapse.

The investors had bought some of the more than $31 billion of equity and debt that Lehman had issued under a 2006 shelf registration statement and subsequent filings. Among the defendants who failed to win dismissal are former Lehman Chief Executive Richard Fuld, and former auditor Ernst & Young.

Kaplan said "it is entirely plausible" that the "misleading picture" Lehman portrayed about its financial conditions inflated its stock price, and resulted in investor losses.

The complaint "adequately alleges misstatements and omissions that overstated Lehman's financial strength, misstated and understated the extent to which it was leveraged, misstated its risk management practices, and understated its exposure to Alt-A and commercial real estate assets," Kaplan wrote. "Alt-A" refers to mortgages that typically did not require documentation of income or assets.

(Reporting by Jonathan Stempel, editing by Maureen Bavdek)