By Patrick Fitzgerald
A federal judge denied Lehman Brothers Inc.'s bid to carve out
$1.3 billion from an earlier court decision that awarded $4 billion
in disputed assets to Barclays PLC stemming from the U.K. bank's
purchase of Lehman's brokerage business.
Judge Katherine B. Forrest of the U.S. District Court in New
York said Wednesday that Barclays was entitled to all of the
so-called margin assets--some billions of dollars in cash and
collateral--securing derivatives positions. The ruling is a win for
Barclays, which purchased Lehman's brokerage business days after
Lehman's 2008 collapse.
The legal fight over the sale began in 2009, when Lehman sued
Barclays saying the British bank negotiated a secret discount when
it bought Lehman's brokerage. A bankruptcy judge concluded that
Barclays didn't receive an improper "windfall" from the sale, but
that Lehman's brokerage was entitled to the approximately $4
billion in margin assets.
Both sides appealed, and the district court ruled that Barclays
was entitled to both groups of assets. James W. Giddens, the
trustee winding down Lehman's brokerage, appealed to the Second
U.S. Circuit Court of Appeals, which last year affirmed the
district court ruling.
"The issues raised by the trustee on this motion come too late,"
said Judge Forrest in a 17-page order. "Both appeals--that of the
bankruptcy court's order and that of this court--have occurred. And
both appeals encompassed determinations that Barclays is entitled
to all margin assets."
Judge Forrest's order, in effect, clarifies the earlier rulings
that awarded all the margin assets to Barclays. The trustee had
sought to narrow the scope of those decisions, arguing that only
those assets that were securing open trading positions at the time
of 2008 sale were included in the deal. Mr. Giddens has appealed
the broader decisions awarding all the margin assets to Barclays to
the U.S. Supreme Court.
A spokesman for Mr. Giddens said, "The trustee is reviewing the
decision, and he continues to move ahead with winding down the
estate and maximizing assets available for future
distributions."
Previously, Mr. Giddens has said the decisions overturning the
bankruptcy court ruling have frustrated the purpose of the
liquidation by reducing the amount available for the estate by $4
billion.
Lehman brokerage customers received about $92.3 billion almost
immediately after Lehman collapsed, and since then total
distributions have exceeded $112 billion, representing a 100%
recovery for customers and priority creditors. However, unsecured
creditors are receiving much less--$5.9 billion, or 27% of their
claims. A Lehman victory in the appeal would increase those
recoveries.
Lehman Brothers Holdings Inc., the bank's New York-based holding
company, which itself has paid back about $100 billion to unsecured
creditors, is still winding down and selling off its remaining
holdings, a process that is expected to continue for several more
years.
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
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