Lehman Minibond Investors in Hong Kong Object to Settlement

By Karen Gullo and Pamela MacLean - Apr 5, 2011 9:19 AM GMT+0800

Hong Kong holders of $1.5 billion of worthless Lehman Brothers Holdings Inc (LEHMQ).-linked structured financial notes called minibonds objected to a proposed settlement, saying it interfered with their lawsuit against Lehman and HSBC Holdings Plc (HSBA), according to court documents.

Lawyers for the minibond holders asked the bankruptcy court not to approve Lehman’s proposed order to establish a procedure for the settlement, which they say allows Lehman to extract hundreds of millions of dollars from the minibonds program, according to today’s filing in Manhattan bankruptcy court.

About 43,000 investors in Hong Kong bought an estimated $1.8 billion of Lehman minibonds that were sold by lenders before the New York-based investment bank filed for bankruptcy in 2008. Investors protested almost daily outside bank branches in Hong Kong, banging cymbals and blaring pre-recorded statements from bullhorns after they were offered repayments of at least 60 cents on the dollar in 2009.

PricewaterhouseCoopers LLC, Lehman’s receiver, said on March 27 the repayment offer was boosted so some minibond holders may receive 70 percent to 93 percent of their money back. Some investors want all their money refunded.

Suit Allowed
A federal district court judge in Manhattan ruled in August that Lehman and HSBC could be sued over the securities sold to the Hong Kong investors, reversing part of a decision by Lehman’s bankruptcy judge who said the investors lacked standing.

Pacific International Finance Ltd. issued the minibonds and marketed them as linked to the credit of financially sound companies and backed by AAA-rated collateral, U.S. district Judge William Pauley III said. A Hong Kong regulatory investigation disclosed that Lehman designed the minibonds program, the judge said. HSBC Bank USA was selected as trustee of the collateral securing the notes, Pauley said, citing testimony in the Hong Kong proceeding.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net
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