Florida Investor Drops Suit Over Losses on Lehman-Backed Gas Supply Bonds

A Florida investor dropped a lawsuit claiming he lost $150,000 on tax-exempt bonds guaranteed by Lehman Brothers Holdings Inc. for a gas-supply contract after his broker said the bonds were backed by the state of Georgia.

Paul Prager, of Boynton Beach, agreed to dismiss the suit, according to a Sept. 1 court filing. He sued the broker, FMS Bonds Inc., in May 2009 in federal court in Miami. Lehman wasn’t a defendant.

“Nothing was misrepresented to him and he made his own decision to buy the security,” James Klotz, president of FMS Bonds, said today in a phone interview. “When this came out at his deposition, his attorney decided that there really was no reason to go any further. We allowed him to dismiss it without us pursuing our legal fees.”

In April 2008, after he told FMS Bonds he wanted conservative, income-producing securities for his portfolio, Prager bought $200,000 of bonds issued by Main Street Natural Gas, a financing vehicle of the Municipal Gas Authority of Georgia, paying 5.5 percent interest, according to his complaint. The bond turned out to be guaranteed by Lehman rather than Georgia, Prager said in the suit.

Wayne H. Schwartz, Prager’s lawyer at Lee & Amtzis P.L. in Boca Raton, Florida, didn’t immediately return a call for comment.

Main Street Natural Gas terminated the contract funded by $709 million in bonds sold in 2008, after Lehman’s subsidiary failed to deliver gas for five days beginning Sept. 18. Tallahassee, Florida, also received gas from the deal.

New York-based Lehman, once the fourth-biggest U.S. securities firm, filed for bankruptcy on Sept. 15, 2008. Lehman failed to honor the guarantee, according to the complaint.

FMS Bonds has offices in North Miami Beach and Boca Raton, Florida; Denver; Greenwich, Connecticut; and Bozeman, Montana, according to its website.

The case is Prager v. FMS Bonds Inc., 09-cv-80775, U.S. District Court, Southern District of Florida (Miami).

To contact the reporter on this story: Thom Weidlich in Brooklyn, New York, at tweidlich@bloomberg.net.

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