Lehman Brothers International Europe's administrators get direction on client money handling

By Caroline Salls

Pittsburgh, Dec. 15 - Lehman Brothers International Europe's joint administrators received a judgment in connection with their application seeking direction concerning the company's obligations for handling client money received before it was placed in administration, according to a news release.

Specifically, the High Court has decided that:

• The pool of pre-administration client money consists of bank accounts and transaction accounts used by LBIE in order to segregate client money. The balance of these accounts total $2.1 billion, but the joint administrators may not recover all of the balances;

• LBIE is not required to top up or adjust the client money pool, whether for clients for whom no money or insufficient money was segregated at the time of administration; for movements between the time of last segregation and the time of administration; or to make good any credit loss shortfall, including the shortfall arising from the insolvency of Lehman Brothers Bankhaus AG;

• The client money pool is to be distributed to clients for whom LBIE had segregated client money at the time of its administration;

• Clients' client money entitlements are to be calculated at the time of administration by reference to what was segregated by LBIE for them at that time;

• Clients will be required to give credit for client money paid to them by LBIE before the time of administration. If LBIE segregated money for clients for fails and those clients have subsequently received the relevant securities, clients will also be required to give credit accordingly; and

• In the absence of an agreement to the contrary, LBIE may not exercise any right of set-off or retention against clients' distributions from the client money pool.

Appeals possible

According to the release, six respondents have been granted permission to appeal the judgment, including LBIE affiliates Lehman Brothers Inc., Lehman Brothers Holdings Inc. and Lehman Brothers Finance AG, unsegregated client money claimant representative CRC Credit Fund, Ltd. and segregated client money claimant representatives Goldman Sachs GSIP Master Co. (Ireland) Ltd. and Paragon Capital Management Fund Ltd.

Any appeal must be filed by Jan. 15.

"There has been a significant uncertainty over who is entitled to claim the client money which LBIE is holding," PricewaterhouseCoopers client money team leader Andrew Clark said in a PricewaterhouseCoopers release.

"This decision provides clarity and enables us to confirm client entitlements."

Joint administrator and PricewaterhouseCoopers partner Steven Pearson said, "We are keen to return client money as soon as possible, and I hope that any appeal can be dealt with swiftly.

"I understand that the way in which LBIE determined entitlements to client money were market practice - this judgment could have wider market consequences if other market participants need to reappraise whether further amounts now need to be segregated."

Tony Lomas, Steven Pearson, Dan Schwarzmann, Michael Jervis and Derek Howell, all partners at PricewaterhouseCoopers, were appointed as joint administrators to Lehman Brothers International Europe on Sept. 15, 2008.

New York-based Lehman Brothers Holdings Inc. was the fourth-largest investment bank in the United States. The company filed for bankruptcy on Sept. 15, 2008 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 08-13555.

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