Lehman, Barclays rehash disclosure dispute after sale trial ends

By Caroline Salls

Pittsburgh, Nov. 23 - Lehman Brothers Holdings Inc. said evidence presented at the trial on its motion to modify its September 2008 asset sale order showed that the sale transaction that was disclosed to the court "was based upon false premises from the very outset," according to a post-trial memorandum filed Monday with the U.S. Bankruptcy Court for the Southern District of New York.

Asset purchaser Barclays Capital and Lehman's official committee of unsecured creditors also filed post-trial memorandums Nov. 22.

As previously reported, Barclays asked the bankruptcy court to enforce the sale order after Lehman claimed that Barclays received $8.2 billion more than it should have in the asset sale.

"In essence, one deal was disclosed to the court while a very different deal was closed," Lehman said in its memorandum.

"In the end, the transaction that closed on Sept. 22, 2008 was not the deal that had been described to the court."

Specifically, Lehman said the court never saw a "clarification letter" that included several amendments to the sale transaction.

The company said the letter changed the definition of purchase assets in the sale agreement and "added billions of dollars in additional assets, purportedly to make up for the phony shortfall Barclays claimed existed based on the liquidation values applied to the repo assets."

Lehman said Barclays suggested throughout the trial that the clarification letter added nothing new to the deal that was not already in the deal.

"But Barclays' effort to make the transfer of billions in additional assets (or purported rights to assets) disappear was belied not only by the evidence at trial (including the testimony of its general counsel Jonathan Hughes) but also the terms of the letter itself, which expressly said it amends the asset purchase agreement," Lehman said in the memorandum.

Barclays: company knew

According to Barclays' post-trial memorandum, Lehman and the committee knew the information on which they based their claims against the purchaser was consistent with the sale that was approved, but they raised their claims almost a year later based on "newly discovered evidence."

"Movants have actively concealed from both the court and from Barclays their understanding of the facts relating to their claims in order to justify those belated (and baseless) claims," Barclays said.

Barclays said Lehman and the committee also understood that the buyer was entitled to the disputed assets.

In addition, Barclays said "there is no evidence that, if presented at the time of the sale," would have changed the outcome of the sale motion in any way."

Possible precedence

The creditors committee said in its memorandum that allowing anything less than full candor and disclosure on Barclays' part "enables Barclays to make a mockery of the bankruptcy sale process and encourages future purchasers of assets in bankruptcy cases to conceal actively windfall gains both before and after the transaction is approved in the hope that the passage of time will nullify challenges to their improper conduct."

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. Its Chapter 11 case number is 08-13555.

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