March 31 (Bloomberg) -- Lehman Brothers Holdings Inc. sued Marubeni Corp. to recover 35.2 billion yen ($353 million), claiming it was the victim of a six-month fraud involving employees at the Japanese trading company that included forged documents and a phony executive.

Lehman provided the funds for a hospital investment business backed by guarantees from Marubeni, people familiar with the matter said. Marubeni yesterday said the guarantees were forged and two employees that may have been involved were fired on March 10. The Tokyo-based company said it had asked the police to investigate and that it, too, was a victim of fraud.

Lehman, the fourth-largest U.S. securities firm, said in a statement it ``fully'' expects to be repaid. The New York-based bank will argue Marubeni is responsible for repayment because it failed to adequately supervise its employees, people with knowledge of Lehman's plans said.

``Marubeni may have to pay all the guaranteed amount, although the court may find that the amount is less,'' said Akihiro Wani, a partner at Linklaters in Tokyo. ``Under Japanese law, if the person claiming that he's acting for the company did not have real authority, the company may still be held accountable for his actions based on apparent authority.''

Wani, who specializes in international finance, said he hasn't seen documents related to the dispute.

`Prolonged Impact'

Marubeni fell 6.6 percent to 726 yen on the Tokyo Stock Exchange today, the second-steepest drop among shares on the Nikkei 225 Stock Average. Lehman declined 2.9 percent to 23.40 euros in Frankfurt trading at 1 p.m. local time.

``Marubeni may say it's a victim, but the case may give rise to the perception that the company has problems with its corporate governance,'' said Yasuhiro Narita, an analyst at Nomura Securities Co. in Tokyo. ``An incident like this is very negative for the share price, and may have a prolonged impact.''

The Tokyo District Court confirmed that an affiliate of Lehman filed a request for compensation today. The contents of the filing are still confidential, the court said. Lehman decided on legal action after the first repayment was missed on Feb. 29 and Marubeni declined to pay, the people said.

The hospital investment business was a partnership between Asclepius Ltd., a unit of LTT Bio-Pharma Co., and a company called G-Forme Co., which received the funds from Lehman, according to the people.

LTT Shares Tumble

LTT Bio-Pharma is cooperating with authorities because it suspects former board members at the now bankrupt Asclepius were involved in a ``dummy'' investment project, it said in a stock exchange filing today.

Shares of LTT Bio-Pharma tumbled 15 percent to 11,020 yen in Tokyo trading, taking declines in the past month to 82 percent. The stock rose to a four-month high of 63,000 yen on Feb. 27, two days before the first payment to Lehman was missed.

Separately, Fintech Global Inc., a Japanese investment bank that arranges temporary financing, said it's assessing the impact on its earnings from an investment plan that involved the use of reportedly forged documents bearing the name of Marubeni. Fintech slumped 16 percent in Tokyo trading, the biggest-ever decline.

The legal action comes as U.S. regulators investigate whether traders spread false rumors about Lehman's financial soundness to profit from a decline in its share price. Lehman has tumbled 23 percent this month in New York trading.

Phony Executive

Lehman has lost almost half its market value in the past year as the subprime mortgage market implosion caused more than $200 billion of writedowns and credit losses at banks and securities firms. On March 18, Lehman posted its smallest quarterly profit since 2003, hurt by the mortgage market slump.

The transaction was arranged during meetings with the two Marubeni employees that included discussions at the company's Tokyo headquarters on Oct. 29 and Nov. 8, the people with knowledge of Lehman's plans said. At one point, an unidentified person posed as a senior Marubeni executive in a meeting with Lehman representatives, they said.

Marubeni alleged the two dismissed employees used its facilities without approval to negotiate the transaction, according to a statement it filed yesterday to the Tokyo Stock Exchange.

``We have no credit obligation, the contracts were all falsified,'' said Marubeni spokesman Takashi Hashimoto, adding that the company doesn't know the whereabouts of the two fired employees.

To contact the reporters on this story: Oliver Biggadike in Tokyo at obiggadike@bloomberg.net; Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

Last Updated: March 31, 2008 07:33 EDT