Battle for $1bn in Lehman assets goes to court

Battle for $1bn in Lehman assets goes to court
By Jane Croft in London

Published: October 10 2010 23:45 | Last updated: October 10 2010 23:45

Five Lehman Brothers entities are taking a battle over more than $1bn of assets to court in a case that underlines the complexity of unwinding the operations of the international bank.

This week the High Court in London will begin hearing a dispute between the administrators of Lehman Brothers’ main European operations and other Lehman subsidiaries to determine ownership of he securities, part of a series of internal transactions.

US bankruptcy law under scrutiny - The assets are currently held by Lehman Brothers International Europe (LBIE) but are subject to competing claims by five Lehman affiliates including units in Switzerland and Hong Kong.

The case centres on how the bank’s entities accounted for repurchase, or repo, transactions.

During the bank’s existence, the deals were straightforward internal trades designed to shift Lehman’s assets between its various operations, they are being broken apart as part of its 2008 collapse, which split the bank into hundreds of separate entities.

The case is the latest twist in a series of high-profile lawsuits stemming from the collapse of the US investment bank at the height of the credit crunch in 2008.

Lawyers predicted at the time that the complexity of the Lehman administration was such that it would lead to years of litigation and court hearings.

PwC, the administrators of LBIE, have already been involved in a number of cases including a legal fight over the $2bn of client money deposited with Lehman’s UK division which concluded this year.

In this case the Court of Appeal overturned an earlier decision that only Lehman clients who had money segregated for them were entitled to share in billions of dollars deposited with the investment bank’s UK division.

Just before the bank failed in September 2008, Lehman segregated some client money for a number of hedge funds such as GLG Investments and Paragon Capital Management Fund.

However, client money was not ring-fenced for other hedge funds such as CRC Credit Fund nor the affiliates of New York-based Lehman.

PwC, the administrators of Lehman Brothers International Europe, has now applied to the UK’s Supreme Court, the highest court in the land, for permission to appeal against the decision.

Last week a German court rejected a claim made on behalf of clients of LBIE for the return of $1bn of client money that had been deposited with a German affiliate prior to the bank’s administration.

PwC, as administrators of LBIE, filed a petition at a Frankfurt court to claim that $1bn plus interest be returned to LBIE by Lehman Brothers Bankhaus in Germany.

However, the Frankfurt am Main regional court ruled that the petition should be dismissed and upheld a decision by the Bankhaus administrator.
.