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Arbitrators Ease Blame on Ernst & Young for Audits of Lehman Brothers
By MATTHEW GOLDSTEIN August 11, 2014 7:07 pm
The finger-pointing over who was responsible for the collapse of Lehman Brothers continues nearly six years after the firm filed for bankruptcy at the height of the financial crisis.
Now, an arbitration panel has dealt with the liability of one of those parties, finding no basis for a malpractice claim against Ernst & Young, the big accounting firm that audited Lehman’s books.
The panel of three former judges ruled in April that it was Lehman’s management, not Ernst & Young, that was most responsible for setting in motion and maintaining a controversial accounting maneuver that allowed the firm to temporarily move tens of billions of dollars in debt off its balance sheet at the end of every quarter.
The previously unreported ruling could complicate a pending lawsuit the New York attorney general’s office filed against Ernst & Young in 2010 over the collapse of Lehman. The lawsuit accused the company of helping Lehman engineer an accounting fraud that made it look less leveraged than it truly was in the months before its collapse in September 2008.
The arbitration ruling could also rekindle debate about the Securities and Exchange Commission’s decision not to pursue an enforcement action against Lehman or any of its former executives over the accounting maneuver, known as Repo 105. In 2012, the S.E.C. closed its investigation into the collapse of Lehman after months of internal debate about the merits of bringing an action.
In March 2010, Anton R. Valukas, a court-appointed bankruptcy examiner and former federal prosecutor, found that Lehman’s management used the Repo 105 transactions to mislead investors and manipulate the firm’s leverage levels at the end of each quarter.
The 2,200-page report compiled by Mr. Valukas, the chairman of Jenner & Block, was widely seen as providing a road map to regulators for cases against Lehman, its former executives and Ernst & Young related to the Repo 105 transactions.
But the S.E.C. decided that the end-of-the-quarter balance sheet adjustments did not contribute to the firm’s undoing and that it was unclear whether Lehman’s chief executive, Richard S. Fuld Jr., knew the details of the accounting maneuvers.
Some critics see the S.E.C.’s decision not to bring an enforcement action against Lehman or Mr. Fuld as a serious failure of the government’s effort to hold Wall Street officials accountable for the financial crisis.
The 14-page arbitration award, signed by two former federal judges and former New York appellate judge, does not mention Mr. Fuld by name and makes only passing reference to a few other former Lehman executives. But the arbitrators concluded that the firm’s top executives should shoulder the brunt of the blame for misleading investors about Lehman’s financial fitness.
“The parties’ extensive list of stipulated facts demonstrates the extent to which Lehman’s agents were aware of the allegedly illicit purposes behind the Repo 105 program,” the ruling said. “The stipulated facts strongly support a finding that Lehman was more culpable than EY.”
The arbitrators did note that Ernst & Young was aware of the Repo 105 transactions and had received “some hard data” about how Lehman was using the transactions. But the arbitrators found that some information was kept from Ernst & Young and that it was not clear the audit firm “had a duty” to review some of Lehman’s management decisions.
The panel said Ernst & Young “persuasively points to the undisputed fact that Lehman, through its agents, intentionally used Repo 105’s to achieve leverage and balance sheet targets.”
All along, Ernst & Young has argued that the Repo 105 transactions — deceptive or not — complied with generally accepted accounting principles.
In the past, a lawyer for Mr. Fuld has said he was unaware of the Repo 105 transactions and “didn’t structure or negotiate them.” Patricia Hynes, Mr. Fuld’s lawyer, could not be reached for comment on the arbitration decision.
In July, lawyers for Ernst & Young filed a motion in a New York State court seeking to confirm the April 7 arbitration ruling. A copy of the ruling was attached as an exhibit to that motion. The legal team from Latham & Watkins that represented Ernst & Young in the arbitration proceeding is the same group of lawyers that is defending the firm in the lawsuit filed by the New York attorney general.
The New York State lawsuit was filed in December 2010 by Andrew M. Cuomo just as he was leaving the attorney general’s office to become governor of New York. The suit was one of several cases inherited by Eric T. Schneiderman when he became attorney general in 2011.
Mr. Schneiderman is still seeking to recover damages he says investors suffered when Lehman, once the nation’s fourth-largest investment bank, filed for bankruptcy. He is also seeking to recover approximately $160 million in fees that Ernst & Young took in as Lehman’s longtime auditor.
A spokesman for Mr. Schneiderman declined to comment.
The Lehman estate, which brought the malpractice claim in 2013, had also wanted to recoup the fees the firm paid to Ernst & Young. The arbitration panel ruled in favor of Ernst & Young after holding a two-day hearing in February.
A spokeswoman for Lehman did not respond to a request for comment. An Ernst & Young spokesman declined to comment.
The arbitration ruling in favor of Ernst & Young does not necessarily mean that Mr. Schneiderman will not prevail in his lawsuit. Arbitration rulings are typically not binding on other litigation, but the decision could persuade Mr. Schneiderman to negotiate a settlement more favorable to Ernst & Young.
Ernst & Young’s lawyers will no doubt point to language in the arbitration ruling that takes the audit’s firm’s side in the blame game.
In October 2013, a few months before the arbitration hearing, Ernst & Young agreed to pay $99 million to settle an investor class-action suit that contended the firm looked the other way on Lehman’s Repo 105 maneuvers. In settling that suit, Ernst & Young said it denied doing anything wrong but agreed to pay the investors to put the matter behind it.
http://dealbook.nytimes.com/2014/08/11/arbitrators-ease-blame-on-auditors-of-lehman/?_php=true&_type=blogs&_r=0#
Statutory Help to Minimize the Impact of Section 382
Because the intent of the Bankruptcy laws is to allow corporations to reorganize and continue operating with less of a debt burden, Sections 382(l)(5) and 382(l)(6) provide help to debtors that are undergoing a bankruptcy reorganization. It is important to note that both of these special provisions only apply if a debtor corporation is under the jurisdiction of the court in a Title 11 or similar case.
........
While Section 382(l)(5) is a very favorable provision that allows a very large pool of NOLs to survive post-bankruptcy, its rules often are too restrictive for corporations undergoing bankruptcy.
Thus, most debtor corporations emerging from bankruptcy rely on Section 382(l)(6), which essentially allows a debtor corporation to value itself after all the debt cancellation of bankruptcy has occurred. Accordingly, the value of the debtor corporation used for purposes of calculating its Section 382 Limitation should be significantly higher post-reorganization, which increases the amount of pre-change NOLs that can be used to offset taxable income in post-change years. It should be noted, however, that even in a situation where Section 382(l)(6) applies, the normal rules of valuing the loss corporation also apply, and thus the debtor corporation still must back out any capital contributions made within the two year period prior to the ownership change and any cash or cash equivalents that are not used in the debtor corporation’s business.
Calendar of Judge Shelley, Aug 12, 2014
10:00 AM
08-13555-scc Lehman Brothers Holdings Inc. Ch. 11
Adversary proceeding: 08-01420-scc Lehman Brothers Inc.
Doc# 8408 Trustee's Objection to the General Creditor Proof of Claim of Connie & Curtis Gale (Claim No. 7000142) filed by Christopher K. Kiplok on behalf of James W. Giddens, as Trustee for the SIPA Liquidation of Lehman Brothers Inc.
Doc# 45406 Motion of Lehman Brothers Holdings Inc. for an Order (I) Determining (A) Automatic Stay Remains in Full Force and Effect and (B) Applicability of State Law Tolling Statutes and 11 U.S.C. § 108(c) To State Law Constructive Fraudulent Conveyance Claims of Individual Creditors or, in the Alternative, (II) Seeking A Limited Modification of the Stay filed by Susheel Kirpalani on behalf of Lehman Brothers Holdings Inc. Motion of Lehman Brothers Holdings Inc. for an Order (I) Determining (A) Automatic Stay Remains in Full Force and Effect and (B) Applicability of State Law Tolling Statutes and 11 U.S.C. § 108(c) To State Law Constructive Fraudulent Conveyance Claims of Individual Creditors or, in the Alternative, (II) Seeking A Limited Modification of the Stay filed by Susheel Kirpalani on behalf of Lehman Brothers Holdings Inc.
Adversary proceeding: 10-03542-scc Lehman Brothers Special Financing Inc. v. U.S. Bank National Association et al
Scheduling Conference
Adversary proceeding: 10-03544-scc Lehman Brothers Financial Products Inc. v. The Bank of New York Mellon Trust Co., National As
Scheduling Conference
Adversary proceeding: 10-03545-scc Lehman Brothers Special Financing Inc. v. The Bank of New York Mellon Corporation et al
Scheduling Conference
Adversary proceeding: 10-03547-scc Lehman Brothers Special Financing Inc. v. Bank of America National Association et al
Scheduling Conference for Motion
Adversary proceeding: 10-03809-scc Lehman Brothers Special Financing Inc. v. Wells Fargo Bank National Association et al
Scheduling Conference
Adversary proceeding: 10-03811-scc Lehman Brothers Special Financing Inc. v. Bank of New York Mellon National Association
Scheduling Conference
A bankruptcy case is a case under title 11 of the United States Code, but only if the debtor is under the jurisdiction of the court and the cancellation of the debt is granted by the court or occurs as a result of a plan approved by the court.
None of the debt canceled in a bankruptcy case is included in the debtor's gross income in the year it was canceled. Instead, certain losses, credits, and basis of property must be reduced by the amount of excluded income (but not below zero). These losses, credits, and basis in property are called tax attributes and are discussed under Reduction of Tax Attributes, later.
settlements
Replaced by claim No 67753
LEHNQ old claim No 21803
$233,469,683.43
LEHNQ New claim No 67753
$234,250,517.60
$10,780,834.17 Difference??
List of plan class 10B ,Updated thanks to stockbum & cotton
UPDATES:
BTW, all claims are filed by BANK OF NEW YORK MELLON
http://dm.epiq11.com/LBH/Claim#CreditorName=BANK+OF+NEW+YORK+MELLON&ds=true&ex=false&maxPerPage=25&page=1
Yes Sir.
Gus Bus, 40 months back:
List of Plan Class 10B claims: (totaling about $10,319,539,000.)
Claim 21805 $314,207,500 CUSIP 52519Y209 - LEHKQ
Claim 22122 $311,742,900 CUSIP 52520B206 - LEHLQ
Claim 22123 $416,013,700 CUSIP 52520E200 - LHHMQ
Claim 21803 $223,469,700 CUSIP 52520X208 - LEHNQ
Claim 21797 $1,264,375,000 CUSIP 524908UB4
Claim 21801 $766,500,000 CUSIP 524908WH9
Claim 21800 $1,933,352,700 CUSIP 524908R36
Claim 21799 $1,516,614,600 CUSIP 524908R44
Claim 21802 $1,521,656,300 CUSIP 5249087M6
Claim 21798 $2,051,666,700 CUSIP 5249087N4
1.130 Pro Rata Share means with respect to an Allowed Claim or Equity Interest (a)
within the same Class, the proportion that an Allowed Claim or Equity Interest bears to the sum
of all Allowed Claims and Disputed Claims or Allowed Equity Interests and Disputed Equity
Interests within such Class, or (b) among all Classes, the proportion that a Class of Allowed
Claims bears to the sum of all Allowed Claims and Disputed Claims; provided, however, that
Administrative Expense Claims, Priority Tax Claims, Priority Non-Tax Claims, Secured Claims,
Convenience Claims, Convenience Guarantee Claims and Section 510
(b) Claims shall not be considered for purposes of “Pro Rata Share” among all Classes; provided, further, however, that
only the following Claims shall be considered in the determination of “Pro Rata Share” among
all Classes with respect to the following Distributions:
(i) Available Cash in the case of LBHI: Senior Unsecured Claims, Senior
Affiliate Claims, Senior Affiliate Guarantee Claims, Senior Third-Party Guarantee Claims,
General Unsecured Claims, Affiliate Claims, Third-Party Guarantee Claims and Subordinated
Claims.
(ii) Available Cash in the case of a Subsidiary Debtor: General Unsecured
Claims and Affiliate Claims.
(iii) LBSF Settlement Amount: General Unsecured Claims against LBSF other
than Claims of any of the Racers Trusts.
(iv) LBSF Additional Settlement Amount: (1) General Unsecured Claims
against LBSF other than Claims of any of the Racers Trusts, and (2) Affiliate Claims against
LBSF other than Claims of any of the Participating Debtors.
(v) LCPI Settlement Amount: General Unsecured Claims against LCPI other
than Claims of any Designated Entity.
(vi) Plan Adjustment: Senior Unsecured Claims against LBHI and General
Unsecured Claims against LBHI.
(vii) Subordinated Class 10A Distribution: Senior Unsecured Claims and
Senior Affiliate Claims.
(viii) Subordinated Class 10B Distribution: Senior Unsecured Claims, Senior
Affiliate Claims, Senior Affiliate Guarantee Claims and Senior Third-Party Guarantee Claims.
(ix) Subordinated Class 10C Distribution: Senior Unsecured Claims, Senior
Affiliate Claims, Senior Affiliate Guarantee Claims, Senior Third-Party Guarantee Claims,
Subordinated Class 10A Claims and Subordinated Class 10B Claims.
From FAQ,Crystal Clear!
100. How can I determine what Plan Class my security is in and what my total recovery will be?
If you have an LBHI Class 3 – Senior Unsecured Claim, then the estimated recovery of your claim will be 21.1%. The actual recovery may vary from this amount
http://www.costbasis.com/images/Lehman_Frequently_Asked_Questions.pdf
Any update on D.E.Shaw Deal?
Tia
here is an intersting link better explains what I'm trying to say :)
http://www.sec.gov/Archives/edgar/data/933425/000093342510000009/acdu0330.htm
TooGood,
They can discharge us, not?
20K LEHLQ or LHMMQ shares @ 0.40, any takers?
We are an NOL play.
No more,no less...
Forget the guarantee issue!
LEHMAN BROTHERS UK HOLDINGS LIMITED (IN ADMINISTRATION)
NOTICE OF INTENDED DIVIDEND PURSUANT TO RULE 2.95 OF
THE INSOLVENCY RULES 1986
on July 31, 2014
http://www.pwc.co.uk/assets/pdf/lehmans-brothers-uk-holdings-limited-notice.pdf
245K shares raded today!
I'm not interested with many thanks.
But deep in all the detritus lurk the seeds of a revival, of sorts. Lehman emerged from bankruptcy holding a potentially valuable thing—$55 billion in net operating losses, or NOLs. If the postbankruptcy entity that is Lehman has any future, all the losses it accumulated while in free fall will be the reason.
That's because Lehman could use the NOLs, along with whatever cash it's got, to merge with another profitable company. The NOLs would then be used to offset the income generated by the combined company and let it operate virtually tax-free for many, many years. The only limitation under tax law is that the NOLs would be good only if Lehman strikes mergers within its own industry—but, then again, “financial services” describes so many different companies, it's not as if Lehman would be starved for choices.
“The game plan would be to strike mergers over and over again to make best use of all those NOLs,” said William Brandt, an expert in restructuring failed companies and chief executive of Development Specialists Inc. He said Lehman could use its losses to acquire smaller banks or finance companies or even something sizable, like business lender CIT Group.
Ultimately, the big payday for Lehman's current investors would come when the new, highly tax-advantaged company is finally sold or—heaven forbid—taken public all over again. Mr. Brandt said this kind of rebirth is almost surely what the company's new board has in mind, and it's much easier to do this sort of delicate work away from the glare of a bankruptcy court.
“I understand it might sound strange to a lot of people,” Mr. Brandt said. “But if you're a vulture investor, Lehman is a very interesting opportunity.”
http://www.crainsnewyork.com/article/20120311/SUB/303119973/the-case-for-lehman-brothers
May 2014 Operating report
http://dm.epiq11.com/LBH/Document/GetDocument/2500144
FADL ABU ZAHR, SLJB lawyer in Lebanon
http://oaz-lawfirm.com/
By Court’s January 31, 2014 Order:
the Avoidance Actions are currently stayed until the later of
(i) May 20,2014 or
(ii) thirty days after the date which the Court enters a scheduling order governing the instant action.
[Docket. No. 42417]