Lehman Bankruptcy Trustee Appeals Barclays Ruling to Supreme Court -- Update

By Stephanie Gleason 

The bankruptcy trustee winding down Lehman Brothers' brokerage business on Monday said he would ask the U.S. Supreme Court to review a ruling that awarded billions of dollars in disputed assets to Barclays PLC.

Following Lehman's 2008 bankruptcy filing, Barclays acquired Lehman's brokerage business in a "no cash" transaction, Lehman says.

A year later, a legal fight over the transaction ensued when Lehman sued Barclays, saying the British bank negotiated a secret discount in the transaction. Judge James Peck, then Lehman's bankruptcy judge, concluded that Barclays didn't receive an improper "windfall" from the sale but wasn't entitled to the so-called margin cash assets worth $4 billion.

Later, however, a three-judge Court of Appeals panel said "ambiguities and loose ends were inevitable" in such a speedy sale and ruled that Barclays was entitled to these disputed assets.

Lehman trustee James W. Giddens on Monday said that "while the Bankruptcy Court rightly rejected Barclays' claims to the margin cash assets, the decisions by the District and Appeals Courts reduced the amount available for the general estate by $4 billion, frustrated the purpose of the liquidation, and undermined the credibility of a sale hearing."

Barclays on Monday declined to comment on Lehman's decision to appeal.

Lehman brokerage customers received about $92.3 billion almost immediately after Lehman collapsed, and since then total distributions have exceeded $110 billion, representing a 100% recovery for customers and priority creditors. However, unsecured creditors are receiving much less--$2.6 billion, or 17% of their claims.

A victory in this appeal would increase those recoveries.

The appeals court ruling in August caused prices of unsecured claims against Lehman to fall to a low of 40 cents, from about 46 cents, in some of the first losses traders had seen on Lehman claims, The Wall Street Journal previously reported.

Lehman, once the nation's fourth-largest investment bank by assets under management, collapsed into the largest bankruptcy ever in September 2008, with $613 billion in liabilities.

The filing sent markets into turmoil and helped trigger a global financial crisis. Lehman's brokerage business was quickly sold to Barclays, and the company's New York-based holding company officially exited bankruptcy in 2012.

The Lehman estate, Lehman Brothers Holdings Inc., is still winding down and selling off its remaining holdings--a process that is expected to continue for several more years. The brokerage is technically not in bankruptcy but is being unwound separately under the provisions of the Securities Investor Protection Act.

Joseph Checkler and Patrick Fitzgerald contributed to this article.

Write to Stephanie Gleason at [e-mail]

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