judge on Monday ruled in favor of the trustee overseeing the liquidation of Lehman Brothers Holdings Inc.'s U.S. brokerage business in the trustee's multibillion-dollar fight with Barclays PLC, calling for all of the money in a disputed account to go to the trustee.
Judge James Peck of U.S. Bankruptcy Court in Manhattan said all $2.054 billion in a so-called margin account must go to the trustee from Barclays, as the trustee argued in court papers following the judge's February ruling as part of the bigger "secret discount" lawsuit, in which Barclays otherwise prevailed.
Barclays, which said it will appeal the ruling, had argued that it should keep about $1.5 billion assets in the account, particularly government-issued securities with maturities of more than three months. The trustee, James W. Giddens, also plans to go after an additional $1.9 billion being held by third parties.
"Today's bench ruling brings finality to this issue by confirming that the $4 billion in Lehman cash and other margin assets belong to the trustee," said Hughes Hubbard & Reed LLP's William Maguire, a lawyer for the trustee.
Judge Peck quoted a statement from the trustee's prior arguments about the fact that Barclays never brought up the government securities during the 34-day trial. "The trial was a fight about margin and it was very clearly a fight about all the margin," placing his emphasis on the word "all." "That was clearly a correct statement."
The judge did rule against the trustee's contention that Barclays should pay about 9% interest on the assets it is recovering, instead calling for a rate of 5%—the rate in September 2008, when Lehman was collapsing.
Lehman last year sued Barclays for billions of dollars, accusing the British bank of negotiating a discount not adequately disclosed to the court when it bought Lehman's broker-dealer unit in 2008. Barclays argued in the months-long trial that both sides negotiated in good faith, and the deal, approved by Judge Peck just days after the investment bank collapsed into bankruptcy, was Lehman's best option.
Lehman pressed its case that in the tumultuous days of September 2008, when Barclays was finalizing its purchase of Lehman's brokerage, Barclays scrambled for more assets and negotiated with some Lehman executives a $5 billion discount. Lehman said its bankruptcy attorney, Weil, Gotshal & Manges partner Harvey Miller, and other Lehman representatives weren't informed of the discount and neither was Peck. Lehman sought to recover what it called more than $11 billion in ill-gotten gains by Barclays.
In his ruling, Judge Peck wrote at several points about the "clarification letter" that became a focal point of the case. Judge Peck agreed at the time of the sale that the letter should be drafted to address several complications and list some assets moving over from Lehman to Barclays. On several occasions throughout Lehman's bankruptcy and the Barclays trial, Judge Peck emphasized he had never approved the actual letter.
But in his ruling, Judge Peck agreed with a key Barclays argument about the letter, saying, "While not expressly approved in so many words, the clarification letter is deemed approved" by the fact that it was known that it would be drafted, and that no party objected to it in court.
While Lehman fought to prove the discount, the trustee disputed the transfer of assets in the margin account and other accounts.
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