Lehman to Pay Barclays $1.3 Billion to Settle Suit – NYTimes.com

It is the latest milestone in the slow dissolution of Lehman, which collapsed in September 2008 after last-minute efforts to sell the firm to Barclays fell apart. The firm filed for bankruptcy protection on Sept. 15, becoming the biggest-ever Chapter 11 case and setting off global market turmoil that roiled the financial world.

In this chaos, Barclays agreed to buy the core of Lehman’s operations for about $1.3 billion.

via Lehman to Pay Barclays $1.3 Billion to Settle Suit – NYTimes.com.

One of the longest-running legal fights from the financial crisis, rooted in the dismantling of Lehman Brothers, is near an end.

The trustee overseeing the winding down of Lehman’s brokerage unit said on Friday that the remaining estate would pay $1.28 billion to settle a lawsuit filed by Barclays, the British bank that acquired the bulk of Lehman’s North American brokerage business.

The pact, if it wins court approval, would conclude about six years of fighting between Barclays and the trustee, James W. Giddens, over that sale.

It is the latest milestone in the slow dissolution of Lehman, which collapsed in September 2008 after last-minute efforts to sell the firm to Barclays fell apart. The firm filed for bankruptcy protection on Sept. 15, becoming the biggest-ever Chapter 11 case and setting off global market turmoil that roiled the financial world.

In this chaos, Barclays agreed to buy the core of Lehman’s operations for about $1.3 billion.

In late 2009, Mr. Giddens filed suit against Barclays, arguing that the bank “secretly” put together a deal to gain an immediate multibillion-dollar windfall after the takeover of the Lehman assets was completed.

At issue were margin accounts, which Barclays argued were assets that were part of its transaction. The Lehman estate has contended that those accounts amounted to cash that should not have been handed over to the British bank.

Barclays steadfastly denied those claims, arguing that nothing was secret about the sale contract or its terms.

The lawsuit has been part of an effort by the trustee to recover as many assets as possible to pay out to the Lehman brokerage estate’s creditors and customers. Thus far, creditors have received about $5.9 billion, or a little over a quarter of all allowed unsecured creditor claims. Customers have received more than $106 billion in distributions.

The first judge who oversaw Lehman’s bankruptcy case originally ruled that while Barclays did not receive an improper gain from the sale, the brokerage estate was owed several billion dollars. Yet that decision was overruled by a panel of appeals court judges, who decided that Barclays could hold onto those assets after all.

Mr. Giddens took his fight to the Supreme Court late last year, but the court declined to hear his appeal.

Under the terms of Friday’s agreement, the brokerage estate will pay Barclays about $1.3 billion. In turn, the estate will have about $600 million to pay out to creditors, releasing them from a reserve dedicated to the legal fight.

According to Mr. Giddens, the settlement will save the Lehman estate about $80 million that it otherwise would have had to pay, based on court rulings.

Both sides also agreed to drop any remaining claims.

“It has always been our duty to prudently and diligently pursue every avenue of recovery for assets we believe belong to the estate, and we did so on behalf of creditors by taking the Barclays litigation all the way to the Supreme Court,” Mr. Giddens said in a statement. “This agreement ends years of litigation and achieves the best result under the circumstances as winding-down and closing out the estate continues in earnest.”

The move will yield a $750 million pretax gain for Barclays when it reports its second-quarter earnings next month, the bank said in its own statement.

The proposal still requires the approval of the judge overseeing Lehman’s bankruptcy case, Judge Shelley C. Chapman of the Federal Bankruptcy Court in Manhattan. She is scheduled to consider the matter at a hearing this month.

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