By Joseph Checkler
The trustee winding down Lehman Brothers Holdings Inc.'s
brokerage and his German counterpart are defending their $550
million settlement against charges from Lehman's parent company
that the deal grossly inflates the amount due to the German
affiliate.
In filings made Friday with U.S. Bankruptcy Court in Manhattan,
Lehman brokerage trustee James W. Giddens and Dr. Michael Frege,
the administrator in charge of Lehman Bankhaus AG, shot back at the
Lehman parent's contention that no evidence exists to support the
amount of the settlement. They also note that they've already
reduced the settlement to $550 million after originally agreeing to
$600 million. The new amount, they say, took into account payments
the German unit had already received from Mr. Giddens's coffers.
Factoring in those payments was a key point Lehman made in its
objection to the settlement this past spring.
The Lehman parent estimated the amount should be about $287
million, while the German unit had sought an $810 million
claim.
"It is a reasonable midpoint of the two extremes, and well
within the Trustee's estimated value of the claim," Mr. Giddens
said in his filing. "It is thus firmly within the reasonable range
of possible outcomes, and the amended Settlement Agreement lies
squarely within the Trustee's sound business judgment."
A Lehman spokeswoman didn't immediately comment. A hearing on
the matter is set for Wednesday in bankruptcy court.
Lawyers for the Lehman parent in April said the settlement,
which resolved a $1.35 billion dispute between Mr. Giddens and the
German administrator, "grossly" inflates how much the German arm is
due. "There is no evidentiary record for this Court to rely upon in
approving this proposed multi-million dollar settlement," Lehman
Brothers Holdings lawyers said in the April filing.
Lehman Brothers Holdings, the parent, struck its own $6.6
billion settlement with Bankhaus in early 2011 that settled all
intercompany squabbles between the parties, but didn't involve Mr.
Giddens.
Lehman Brothers Inc., the U.S. brokerage of parent Lehman
Brothers Holdings Inc., is being unwound by Mr. Giddens under the
Securities Investor Protection Act. Individual customers of the
brokerage received all $92.3 billion they were owed almost
immediately after Lehman's bankruptcy. The bulk of the Lehman
customer accounts, with assets of more than $40 billion, have been
transferred to Barclays PLC (BCS).
However, other customers of the brokerage---mostly hedge funds
and big banks---had to wait as Mr. Giddens sorted out claims issues
both in the U.S. and overseas.
Mr. Giddens has now reached historic settlements with many
foreign counterparties and has begun paying back those financial
institutions. Those customers are expected to get all their money
back.
Lehman's collapse became an enduring symbol of one of the great
financial crises in U.S. history. Its U.S. brokerage business was
quickly sold to Barclays, but the remnants of Lehman still exist in
billions of dollars of assets being overseen by Alvarez &
Marsal and the wind-down of the brokerage business under the
guidance of Mr. Giddens.
Judge James Peck confirmed Lehman's approximately $65 billion
creditor payback plan in December 2011, and the estate has paid
back billions since then.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Joseph Checkler at joseph.checkler@dowjones.com. Follow
him on Twitter at @JoeCheckler
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