By Joseph Checkler 
   Of DOW JONES DAILY BANKRUPTCY REVIEW 
 

The trustee liquidating Lehman Brothers Holdings Inc.'s (LEHMQ) brokerage unit explained his rationale for wanting to return $2.2 billion in cash plus about $6.1 billion of account positions to the firm's European prime brokerage clients, as the European unit continues to fight for more.

In a filing last week with U.S. Bankruptcy Court in Manhattan, lawyers for trustee James W. Giddens said the determination of about $8.3 billion "is one of the largest allowed claims in the history of bankruptcy" and that it adheres to the rules of the Securities Investor Protection Act, which governs Giddens as he unwinds Lehman's brokerage.

LBI Europe last month had called some of the trustee's accounting "not an accurate determination of LBI's books and records" and asked a judge 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."

Many of LBI Europe's gripes don't take into account the settlements and partial settlements that it made in the hectic week of Lehman's 2008 bankruptcy filing, the trustee said in the filing. The trustee added that Securities Investor Protection Corp. regulations allowed it to reduce the amount of the claim.

"Wishing to have its cake and eat it too, LBIE takes the position that all of the value in those accounts should be allowed," Giddens's lawyers said.

A lawyer for Lehman Brothers Europe didn't immediately respond to a request for comment.

The trustee has said it controls a $20.6 billion pool of 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, have 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, a judge signed off on Lehman's $65 billion plan to pay back creditors, who should start getting money back some time in the coming weeks.

At a hearing next week, Giddens will ask U.S. Bankruptcy Court Judge James Peck for approval to allocate $18.3 billion to a fund that will be used to pay back customers.

(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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