Bloomberg News

Lehman Brokerage Seeks to Deny $8.9 Billion Affiliate Claim

September 30, 2011

(Updates with previous claim in second paragraph.)

Sept. 30 (Bloomberg) -- The trustee of Lehman Brothers Holdings Inc.’s defunct brokerage said a so-called house claim filed by Lehman Brothers International (Europe) should be rejected because the affiliate isn’t a customer of the brokerage.

The Lehman affiliate LBIE is seeking $8.9 billion from the brokerage, according to a bankruptcy court filing. Its house claim, asserted for itself and its creditors, came on top of a separate claim on behalf of LBIE customers who traded U.S. securities. While faulting the house claim, the trustee has allowed $8.3 billion of the customer claim, “one of the largest allowed claims in the history of bankruptcy,” he said in the filing in U.S. Bankruptcy Court in Manhattan.

Like its parent, the New York-based Lehman brokerage, which is being separately liquidated, is trying to cut claims filed by affiliates and customers. Its Lehman parent this month settled claims for an undisclosed amount with London-based LBIE, its largest foreign affiliate.

Brokerage trustee James Giddens, arguing that Lehman Europe didn’t deal directly with the U.S. brokerage as a broker or dealer -- instead going through the Lehman group -- said it had no right to customer treatment for its house claim.

No Claim

“LBIE does not have a claim on account of securities that LBI received, acquired, or held in the ordinary course of its business as a broker or dealer,” Giddens said in the filing.

In a separate statement, he said that allowing the house claim “would benefit the general estate of a foreign entity while decreasing substantially the amount that could be distributed to all third-party, public customers of LBI.”

Katherine Howbrook, a spokeswoman for LBIE at its administrator, PricewaterhouseCoopers, didn’t immediately respond to requests for comment.

LBIE originally wanted as much as $13.9 billion for its house claim, Giddens said.

The Lehman parent filed the largest bankruptcy in U.S. history on Sept. 15, 2008. The U.S. brokerage went into liquidation four days later.

The brokerage bankruptcy case is Securities Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--With assistance from Lindsay Fortado in London. Editors: Mary Romano, Peter Blumberg

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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