State of Nevada to sue Wachovia

Nevada plans to sue Wachovia Global Securities Lending over a potential $50 million loss from investing in now-bankrupt Lehman Brothers Holdings, Inc., the state treasurer's office says.

Steve George, spokesman for state Treasurer Kate Marshall, said Thursday the attorney general's office will consult with outside counsel, and the state Board of Examiners has approved a contract for $500,000 to hire expert witnesses and to start the lawsuit process.

The state invested the money with Lehman in 2007, and was supposed to be paid back with interest this month. Wachovia, which handles securities lending for the state, played a role in the Lehman investment.

"According to the attorneys, they think we have a very good chance," George said, adding that the state hopes to recover the full $50 million.

But, he cautioned, "You never know with any court how you will end up doing."

Marshall said that in 2007, when markets took a serious downturn, she consulted with Wachovia and was told not to sell the securities because the investment would be made good. Marshall also said other states have sued Wachovia, including California and Wyoming.

Marshall told legislators last month that according to bond rating experts the state might recover no more than 50 cents on the dollar from the Lehman investment if it didn't pursue its own legal action.

The treasurer also told legislators that the state has a total of $254 million invested in corporate bonds, all of which should mature in August.

That raised concern for Assemblywoman Heidi Gansert, R-Reno, who questioned whether the state should pull out of its corporate investments completely.

Marshall said that if the state withdrew, it would lose potential interest and would pay $1.7 million in fees.

Wachovia is still the state's securities lending agent until the corporate bonds expire in August, but the company no longer advises the state on its investments.