The trustee unwinding the brokerage of Lehman Brothers Holdings Inc. (LEHMQ) pushed back his estimate as to when he thinks he can start allocating $18.3 billion to a fund that will be used to pay back customers, citing an ongoing dispute with Lehman's European affiliate over how much it can claim.

At a Wednesday hearing, a lawyer for trustee James W. Giddens said he hoped "interim distributions" to customers could start during the first half of 2012 rather than in "early 2012" as was originally hoped.

"This time around there are more issues on the table," said Hughes Hubbard & Reed LLP's David W. Wiltenburg, a lawyer for the trustee, referring to a first allocation to customers approved earlier in the case. This time, Wiltenburg said, there are "more dollars in question."

A big chunk of those dollars is tied up in a dispute with Lehman Brothers International Europe, which Giddens intends to pay $2.2 billion in cash plus about $6.1 billion of account positions. LBIE's claims are related to the firm's European prime brokerage clients, but it thinks it should be treated as a "customer" and thus paid more.

Wiltenburg told Lehman Judge James Peck of the U.S. Bankruptcy Court in Manhattan that if the trustee could reach "a certain level of comfort" on some issues, it thinks it can start distributing money to customers before settling the LBIE dispute. A lawyer for one brokerage customer stood up in court Wednesday to ask Peck to set a strict schedule for when money can start going back to customers, citing that his client has waited three years.

Peck said he was "sensitive to the fact that there is an unheard Greek chorus of impatient creditors who are saying 'What about us?'" but rejected the strict timetable. Wiltenburg, the trustee's lawyer, said he hoped to have more specific details of the progress at a hearing next month.

The LBI Europe claim, and how it's determined, will greatly affect Giddens's payback plan. In filings, LBIE has called some of the trustee's accounting "not an accurate determination" of Lehman's books and records and asked Peck 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."

The hearing was essentially a status update on Giddens's request to allocate the money to customers, which Peck will eventually have to approve. Giddens said in court papers last month that most of the $23.7 billion it expects to eventually be available to those customers is "now in hand."

The trustee has said it controls a pool of more than $20 billion in 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, has 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, Peck signed off on Lehman's $65 billion plan to pay back creditors, who should start getting money back sometime in the coming weeks.

(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

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