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Lehman Sues Barclays for $5 Billion Plus Damages (Update2)
By Tiffany Kary
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSE.n6nVdSME&pos=5

Nov. 16 (Bloomberg) -- Lehman Brothers Holdings Inc.’s bankrupt estate and a trustee for its brokerage both sued Barclays Plc, seeking the return of a $5 billion “windfall.”

Lehman seeks a trial to recover the money, along with damages, according to the lawsuit, filed today as an adversary proceeding in Lehman’s main case in U.S. Bankruptcy Court in Manhattan. Undisclosed features of the sale included $5 billion to $7 billion in excess collateral under a repurchase agreement, $2.7 billion added while a sale hearing in court was in progress, and $2.3 billion in margin deposits added after the sale was approved, lawyers for Lehman said.

“The sale transaction was secretly structured from the outset to give Barclays an immediate and enormous windfall profit,” lawyers for Lehman said, claiming some Lehman executives knew the information without revealing it to the company’s management, board or attorneys.

Barclays also failed to pay about $500 million in bonuses and paid only $238 million of $1.5 billion in other obligations, according to the lawsuit.

Separately, James Giddens, the trustee liquidating Lehman’s brokerage on behalf of the U.S. Securities Investor Protection Corp., filed a lawsuit alleging cash and other assets worth $6.7 billion weren’t sold to Barclays. He also seeks to recover all other undisclosed benefits that Barclays obtained at the expense of the Lehman estate.

Third Lawsuit

In a third lawsuit filed today, Lehman creditors seek a ruling that the transaction that gave Barclays the $5 billion was never approved by the court. They say a “clarification letter” dated Sept. 20, 2008, wasn’t presented in court when U.S. Bankruptcy Judge James Peck approved the sale Sept. 19.

The letter “crystallized Barclays receipt of a secret, undisclosed, $5 billion block discount” on the assets it bought from Lehman, creditors said in the complaint.

Lehman previously said in court documents that executives including Ian Lowitt, Paolo Tonucci and Bart McDade knew that Barclays was getting securities valued at about $50 billion for $45 billion in cash.

Lehman’s $1.75 billion sale to London-based Barclays was approved following the biggest bankruptcy in U.S. history. Peck overruled creditors’ objections that the sale was moving too quickly. He said it was clear there were no other purchasers, and that the deal was needed to help stabilize global financial markets.

Deal’s Urgency

Harvey Miller, Lehman’s bankruptcy lawyer, said at the time that the Barclays deal needed to close as soon as possible or employees would flee and there wouldn’t be anything left to sell.

Michael O’Looney, a Barclays spokesman, declined to comment today.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The trustee’s adversarial proceeding to the main case is 09-01732, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

To contact the reporter on this story: Tiffany Kary in New York at [e-mail]

Last Updated: November 16, 2009 19:00 EST