By Joseph Checkler
A judge on Thursday approved a settlement between the trustee
unwinding Lehman Brothers Inc. and Pacific Investment Management
Co. that settles $187 million of Pimco's claims against the
brokerage.
A lawyer for Lehman trustee James W. Giddens said the deal
resolves the "last major" dispute among creditors asserting
"customer" status in the case.
In court papers filed late last month, Mr. Giddens said the
settlement fully resolves the vast majority of remaining customer
claims against the brokerage by reclassifying them as less-valuable
unsecured claims. Pimco will get a fraction of what it said it was
owed.
The deal addresses 81 claims and leaves Pimco, a unit of German
insurer Allianz SE, with a $146.6 million general unsecured claim
outstanding against the brokerage.
That doesn't mean Pimco is getting the full $146.6 million; the
distinction between a customer claim and a general unsecured claim
is crucial in Lehman's unwinding. Customers of the brokerage,
including the 110,000 individual retail customers who were paid
back in the days immediately following Lehman's 2008 bankruptcy
filing, are set to recover 100 cents on the dollar in accordance
with Mr. Giddens's creditor-payback plan. But general unsecured
claims are destined to recover much less.
Pimco, which oversees pension and 401(k) assets for millions of
Americans, will receive a $20 million cash payment under the deal.
The mutual-fund company has been working to stem an exodus of
investors in the wake of co-founder Bill Gross's sudden departure
in September.
Some Pimco clients also will receive a total of $25.6 million in
returned collateral.
In return, the Lehman brokerage's estate will receive $4.9
million, also from returned collateral, and would avoid future
litigation that could prove both expensive and time-consuming.
This type of dispute has been common during Mr. Giddens's
unwinding of the brokerage, as creditors sought larger recoveries.
So far, Mr. Giddens has paid out about $105 billion to customers of
Lehman's brokerage business.
Separate from Lehman Brothers Holdings Inc.'s Chapter 11 case,
the brokerage is technically not in bankruptcy but is being unwound
separately under the provisions of the Securities Investor
Protection Act.
Tom Corrigan contributed to this article.
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