By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW
Lehman Brothers Holdings Inc. (LEHMQ) is suing Citigroup Inc.
(C) in an effort to recover $2.5 billion in cash transferred to
Citi in the months before Lehman's September 2008 bankruptcy
filing.
In a Wednesday filing with the U.S. Bankruptcy Court in
Manhattan, Lehman said that just after its bankruptcy filing, it
asked Citi to return $2 billion being held in a segregated Citi
account since that June, and Citi refused.
"This action seeks to remedy the harm perpetrated as a result of
Citibank's efforts to elevate its position against the Lehman
estates over similarly situated creditors," Lehman lawyers said in
the filing.
Danielle Romero-Apsilos, a spokeswoman for Citi, said in an
emailed statement, "This action is an unjustified attempt by the
Lehman estates to renege on their obligations to Citi, and claw
back assets to which they have no right." Apsilos added that
Lehman's bankruptcy examiner commended Citi for going "out of its
way to try to help Lehman" prior to the filing.
"In doing so, Citi needed to have due regard for its own safety
and soundness and appropriately sought to protect its shareholders
from unjustifiable risks of loss by obtaining guarantees and cash
deposits from Lehman," Romero-Apsilos said.
In its suit, Lehman alleges that in June 2008, "negative market
signals" regarding Lehman caused Citi to ask for $2 billion that
would be put into a segregated account. Citi itself, Lehman said,
referred internally to the money as "captive funds."
Three months later, as Lehman teetered toward bankruptcy, the
bank transferred another $500 million to Citi, money that Lehman
also wants back now.
Lehman is also accusing Citi of filing nearly $2 billion in
"inflated and invalid" claims against Lehman over swap
agreements.
Despite the confirmation of Lehman's historic $65 billion
creditor-payback plan late last year, the company still has some
fairly serious litigation to go through, not to mention billions of
dollars in real estate and other assets that ensures it will
continue to exist as it unloads and manages those investments.
In addition to the new Citi complaint, Lehman and J.P. Morgan
Chase & Co. (JPM) are suing each other over what happened in
the tumultuous days of September 2008, with Lehman alleging J.P.
Morgan illegally siphoned billions of dollars from Lehman just
before the bankruptcy and J.P. Morgan countering that Lehman used
"collusion and deception" when it told J.P. Morgan that an
emergency loan it made was backed by $70 billion in securities.
Lehman collapsed into the largest bankruptcy in history in
September 2008, and since then, a team of bankruptcy professionals
under the direction of Alvarez & Marsal Inc. has managed its
assets, including real-estate holdings, corporate debt and
derivatives.
Late last year, a judge approved Lehman's creditor-payback plan,
which should distribute about $65 billion and treats creditors of
Lehman subsidiaries better than those of the parent company. Lehman
hopes to start paying back creditors by the end of the first
quarter.
(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