A bondholder last week filed a class action suit against Mutual Benefit Life Insurance Co., Shearson Lehman Brothers, and other parties charging that an $18.7 million municipal issue was "recklessly" sold to investors.

The suit alleges that Mutual Benefit, Shearson Lehman, accounting firm Ernst & Young -- which issued an unqualified opinion in March on Mutual Benefit's financial condition -- and former chief executive officer of the insurer, Henry F. Kates, either knew that Mutual Benefit was hurtling toward insolvency or unknowingly produced "materially false and misleading statements in the official statements," according to the complaint.

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