Judge Approves Lehman Settlement With Pimco

By Joseph Checkler 

A judge on Thursday approved a settlement between the trustee unwinding Lehman Brothers Inc. and Pacific Investment Management Co. that settles $187 million of Pimco's claims against the brokerage.

A lawyer for Lehman trustee James W. Giddens said the deal resolves the "last major" dispute among creditors asserting "customer" status in the case.

In court papers filed late last month, Mr. Giddens said the settlement fully resolves the vast majority of remaining customer claims against the brokerage by reclassifying them as less-valuable unsecured claims. Pimco will get a fraction of what it said it was owed.

The deal addresses 81 claims and leaves Pimco, a unit of German insurer Allianz SE, with a $146.6 million general unsecured claim outstanding against the brokerage.

That doesn't mean Pimco is getting the full $146.6 million; the distinction between a customer claim and a general unsecured claim is crucial in Lehman's unwinding. Customers of the brokerage, including the 110,000 individual retail customers who were paid back in the days immediately following Lehman's 2008 bankruptcy filing, are set to recover 100 cents on the dollar in accordance with Mr. Giddens's creditor-payback plan. But general unsecured claims are destined to recover much less.

Pimco, which oversees pension and 401(k) assets for millions of Americans, will receive a $20 million cash payment under the deal. The mutual-fund company has been working to stem an exodus of investors in the wake of co-founder Bill Gross's sudden departure in September.

Some Pimco clients also will receive a total of $25.6 million in returned collateral.

In return, the Lehman brokerage's estate will receive $4.9 million, also from returned collateral, and would avoid future litigation that could prove both expensive and time-consuming.

This type of dispute has been common during Mr. Giddens's unwinding of the brokerage, as creditors sought larger recoveries. So far, Mr. Giddens has paid out about $105 billion to customers of Lehman's brokerage business.

Separate from Lehman Brothers Holdings Inc.'s Chapter 11 case, the brokerage is technically not in bankruptcy but is being unwound separately under the provisions of the Securities Investor Protection Act.

Tom Corrigan contributed to this article.

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