An investment firm filed yesterday a lawsuit against Lehman Brothers Holdings, Inc. for misleading customers before its collapse.

Executives for Lehman Brothers concealed information from investors about the firm's mortgage-related losses and took home lucrative bonuses even in the face of signs that trouble loomed, according to the lawsuit filed by the Investment Pool in San Mateo County near San Francisco.

The Investment Pool, representing public agencies that invested in Lehman and lost more than US$150 million when the firm went bankrupt, filed the lawsuit at San Francisco Superior Court.

The lawsuit accuses Lehman Brothers for fraud, negligent misrepresentation and violations of California law and the federal Securities Act.

Lehman Brothers expanded its real estate portfolio in 2006 and 2007, despite declining values, increasing mortgage defaults and "enormous losses" reported by other companies such as Citigroup, Bear Stearns and UBS, the suit claims.

Lehman said it had superior risk management practices that "hedged" against the company's real estate losses, but did not give information about those practices, the lawsuit states.

The Lehman case "represents the worst example of the fraud committed by modern-day robber barons of Wall Street, who targeted public entities to finance their risky practices and then paid themselves hundreds of millions of dollars in compensation while their companies deteriorated," according to the lawsuit.

The San Mateo County Board of Supervisors decided two weeks ago to authorize the Investment Pool to sue Lehman's executives on behalf of its members, which include cities, school districts and transit agencies.

"Top Lehman executives made public statements that the company was financially sound before they declared bankruptcy," San Mateo County Supervisor Mark Church, chairman of the board's Finance and Operations Committee, said in a statement.

"There is evidence they perpetrated a fraud against investors. This isn't some sort of paper loss that is simply written off a ledger book. This hurts our school children, our roads, our necessary services."

When Lehman filed for bankruptcy protection on Sept. 15, the largest such filing in US history, it left San Mateo County agencies in its "ruinous wake," according to the suit.

Preliminary numbers show high school and elementary school districts lost US$37 million, the San Mateo Community College District lost US$25 million, the Transportation Authority lost US$22 million and 15 cities sustained large losses, the suit states.

Among the dozen top officials named in the suit are Chief Executive Richard Fuld Jr., Chief Financial Officer Christopher O'Meara, former Chief Operating Officer Joseph Gregory and members of the company's board of directors.

Attorneys filed the suit in state court in San Francisco because the county purchased Lehman securities from representatives working out of the San Francisco office and the pool's custodial account with the securities is held in California.