Lehman denied relief from sale order; judge says omitted information wouldn't change outcome

By Caroline Salls

Pittsburgh, Feb. 22 - Although some "very significant information" was left out of the Lehman Brothers Holdings Inc. sale hearing in September 2008, a federal judge ruled Tuesday that the information would not have changed the outcome of the sale hearing, according to a filing with the U.S. Bankruptcy Court for the Southern District of New York.

In addition, judge James M. Peck said in his ruling that "the failure to disclosure material information in this case does not involve fraud, misrepresentation or misconduct."

If fraud or misconduct had been proven, Peck said he would have most likely granted Lehman's motion for relief from the sale order.

Peck said Lehman could not prove that it should be granted relief from the sale order. The judge said he was "unimpressed with the opinion testimony presented by the entire team of expert witnesses retained by the movants who endeavored to show that Barclays realized a multi-billion dollar windfall gain."

"The [asset purchase agreement] represented the best possible alternative for Lehman's employees at a time when the proverbial ice cube was melting," Peck said in his ruling.

"The court knew that the broker-dealer business was being sold to the one buyer in a position to employ thousands, to protect customers and to maintain the on-going operations of what had been Lehman's core business.

"While it is true that a number of highly relevant and clearly important disclosures were not made at the sale hearing, those failures to disclose are far outweighed by the fact that the court was well enough informed to approve the acquisition with complete confidence that it was better than any alternative.

"Indeed, it was the only alternative."

Clarification letter

Peck said a clarification letter was never presented to the court for approval, casting doubt on demands by asset purchaser Barclays plc to recover disputed assets.

The judge said the clarification letter included "any number of clarifications that are really more than that - they are important additions or alterations designed to match the documentation for the transaction with the evolving business understandings of the parties."

"Some of these provisions are either radically different from anything presented at the sale hearing or in actual conflict with statements made during that hearing," Peck's ruling said.

"This is a document that should have been subjected to further judicial oversight, either to confirm that it was in fact covered by the language of the existing sale order or to obtain express bankruptcy court approval for these agreed changes to the APA."

However, Peck said he decided to treat the clarification letter as having been approved because the sale parties relied on it as a controlling document and because it was referred to in the sale order.

Asset recovery rulings

In addition to denying the company's motion for relief from the sale order, Peck granted a Barclays motion to recover "Clearance Box" assets, but denied its motion to recover "margin assets" and "15c-3-3 assets."

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.

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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