By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW
The trustee liquidating Lehman Brothers Holdings Inc.'s (LEHMQ)
brokerage unit explained his rationale for wanting to return $2.2
billion in cash plus about $6.1 billion of account positions to the
firm's European prime brokerage clients, as the European unit
continues to fight for more.
In a filing last week with U.S. Bankruptcy Court in Manhattan,
lawyers for trustee James W. Giddens said the determination of
about $8.3 billion "is one of the largest allowed claims in the
history of bankruptcy" and that it adheres to the rules of the
Securities Investor Protection Act, which governs Giddens as he
unwinds Lehman's brokerage.
LBI Europe last month had called some of the trustee's
accounting "not an accurate determination of LBI's books and
records" and asked a judge to overturn the trustee's decision
approving $8.3 billion as the amount for one of its claims rather
than the $15.1 billion the European unit says it's owed.
The "omnibus customer claim," as it's called, is in addition to
another $8.9 billion the two sides are haggling over. The trustee
contends LBI Europe is asking to be treated along the same lines as
those of individual customers, who expect to eventually get full
recovery in the brokerage's liquidation. In all, the trustee said
LBI Europe is claiming "customer status" for $24 billion, "a number
that currently exceeds all the assets under the trustee's
control."
Many of LBI Europe's gripes don't take into account the
settlements and partial settlements that it made in the hectic week
of Lehman's 2008 bankruptcy filing, the trustee said in the filing.
The trustee added that Securities Investor Protection Corp.
regulations allowed it to reduce the amount of the claim.
"Wishing to have its cake and eat it too, LBIE takes the
position that all of the value in those accounts should be
allowed," Giddens's lawyers said.
A lawyer for Lehman Brothers Europe didn't immediately respond
to a request for comment.
The trustee has said it controls a $20.6 billion pool of assets
to pay back creditors, but it hasn't yet been determined how those
funds will be divided between the broker-dealer's estate and
customers. The trustee has also cited a "substantial shortfall,"
meaning creditors other than individual brokerage customers won't
receive anything near 100% of their claims.
Giddens's wind-down of the Lehman broker-dealer is done under
the authority of the Securities Investor Protection Corp. because
that agency governs the liquidation of failed brokerage firms.
His team has transferred some 110,000 brokerage accounts with a
value of more than $92 billion out of Lehman Brothers following the
investment bank's collapse in 2008. The bulk of the Lehman customer
accounts, with assets of more than $40 billion, have been
transferred to Barclays PLC (BCS), which bought Lehman's brokerage
when it filed for bankruptcy in September 2008.
The broker-dealer's bankruptcy case is being administered
separately from Lehman Brothers Holdings' Chapter 11 proceeding.
Last month, a judge signed off on Lehman's $65 billion plan to pay
back creditors, who should start getting money back some time in
the coming weeks.
At a hearing next week, Giddens will ask U.S. Bankruptcy Court
Judge James Peck for approval to allocate $18.3 billion to a fund
that will be used to pay back customers.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-By Joseph Checkler; Dow Jones Newswires; 212-416-2152;
joseph.checkler@dowjones.com