Lehman investors, underwriters in $417 million accord

(Reuters) - Investors of Lehman Brothers have reached a $417 million settlement with units of Bank of America Corp, Morgan Stanley and more than 30 other underwriters of $31 billion in Lehman debt and equity.

The deal, which still needs federal court approval, would resolve the underwriters' role in a proposed class action accusing them of helping perpetuate misstatements about Lehman's finances leading up to its historic downfall, according to court papers filed on Friday.

Lehman, whose 2008 collapse contributed to the global financial crisis, got court approval on Tuesday on a creditor payback plan that would let it exit bankruptcy after three years. Judge James Peck and Lehman's lead lawyer, Harvey Miller, were choked up, and a packed courtroom erupted in applause when the plan to end the largest-ever Chapter 11 bankruptcy was approved.

But even as it gets set to begin paying back its creditors, litigation surrounding its insolvency is far from over.

An investor class action lawsuit is ongoing against other underwriters and against Ernst & Young, Lehman's former auditor.

Investors filed the lawsuit in 2008, accusing Lehman directors, then-CEO Richard Fuld among them, of painting a misleading picture of Lehman's health in financial statements and securities offerings. Underwriters contributed to the fraud by failing to investigate and ensure the truthfulness of the statements, the investors said.

The company previously asked for a $90 million settlement with Fuld and other former Lehman directors to settle their role in the matter. With the addition of Friday's $417 million accord, settlements in the case would total $507 million if approved.

Other underwriters included in the settlement are units of Bank of New York Mellon, Citigroup and Wells Fargo.

The case is In re Lehman Brothers Equity/Debt Securities Litigation, U.S. District Court, Southern District of New York, No. 08-cv-5523.

The bankruptcy is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.