Lehman Brothers International administrators ask Supreme Court to hear client money case

By Caroline Salls

Pittsburgh, Sept. 27 - Lehman Brothers International Europe's joint administrators have appealed a Court of Appeals ruling on the company's client money handling obligations to the Supreme Court, according to a news release.

As previously reported, the joint administrators sought direction in May 2009 concerning the handling of client money received before Lehman Brothers International Europe's administration.

In January 2010, CRC Credit Fund Ltd., Lehman Brothers Inc., Lehman Brothers Finance AG and Lehman Brothers Holdings Inc. appealed judgments related to the client money issue.

The administrators said the Court of Appeals overturned the previous judgments on two issues.

Specifically, the appeals court said the FSA's client money rules require identifiable client money held by Lehman Brothers International Europe at the time of administration outside of its segregated accounts to be pooled with the client money held in its segregated accounts.

The pool will be distributed to all of the clients entitled to claim against the pool.

The appeals court also ruled that all clients who ought to have had money segregated for them by Lehman Brothers International Europe as client money before administration are now entitled to share in the client money pool, regardless of whether or not the company segregated the money for them.

In addition, the administrators said the appeals court upheld the previous ruling on two issues.

Specifically, the courts agreed that the statutory trust attached to client money attaches at the point of receipt of client money by Lehman Brothers International Europe, not at the point of segregation.

In addition, both courts ruled that money that was payable by Lehman Brothers International Europe to a client but had not been appropriated to that client before the administration is not client money and does not form part of the client money pool.

Delay concerns

According to Monday's release, the appeals court's decision will not allow the joint administrators to return the money on a timely basis, contrary to distribution rules.

Instead, before making any meaningful distribution from the client money pool, the administrators said they "will have to embark on an exercise that will involve identifying entitlements to client money."

The administrators said the judgment also places the onus on them to identify client money in unsegregated bank and transaction accounts.

"Taken together, the joint administrators expect these tasks to result in significant delay, possibly years, and additional cost in making any distribution of client money," the administrators said in the release.

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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