We in the media have been finding all kinds of ways to commemorate the one year anniversary of the collapse of Lehman Brothers Holdings Inc. But for the Litigation Daily’s money, Lehman’s bankruptcy lawyers at Jones Day found a much more exciting way to mark the occasion. They filed an 87-page motion Tuesday asking Manhattan federal bankruptcy court judge James Peck to modify the order approving last September’s sale of Lehman’s crown-jewel investment arm to Barclays Capital Inc. Specifically, Jones Day argues that Peck approved the deal based on “an inaccurate record due to mistake, inadvertence, or misrepresentations to the court.” Those are pretty strong words, folks.
At the time he approved the asset sale, Jones Day’s team (led by Robert Gaffey) asserts, the judge was not told that certain Lehman executives brokered a behind-the-scenes discount of several billion dollars for Barclays. “The fact is that the deal was actually structured to give Barclays an immediate and enormous windfall profit,” the Jones Day lawyers write. “Certain Lehman executives agreed to give Barclays an undisclosed $5 billion discount off the book value of the securities.” The Lehman estate is also asking the judge to clear the way for Lehman to pursue breach of fiduciary duty and breach of contract claims.
Lehman’s liquidation trustee, James Giddens of Hughes Hubbard & Reed, joined the estate in asking Peck to address Barclays’ alleged multibillion-dollar discount, as well as Barclays’ failure to pick up the tab for Lehman bonuses or to assume $1.5 billion in Lehman liabilities. Giddens, who is represented by outside counsel from his firm, released an e-mail statement saying he objected to Barclays’ claims to “billions of dollars in additional assets that are customer property and not, in my view, authorized by the [previously approved] sale of Lehman Brothers Inc. to Barclays.”
The latest Lehman hullabaloo shouldn’t come as a surprise. Litigation Daily contributor Ben Hallman wrote about the rushed Lehman sale to Barclays in last November’s print edition of The American Lawyer. Even then, Hallman reported, creditors were questioning the $1.35 billion price tag Judge Peck initially approved. “What happened to Lehman’s assets?” asked a partner at a firm representing a creditor. “Did they go up in smoke?”
And Jones Day hasn’t exactly made a secret of its suspicions about the deal. Our previous stories about the firm’s fight for discovery on Barclays are here and here. Meanwhile, the deal continues to be investigated by creditors committee counsel from Quinn Emanuel Urquhart Oliver & Hedges and court-appointed examiner’s counsel from Jenner & Block.
Jonathan Schiller of Boies, Schiller & Flexner represents Barclays in the Lehman matter. He did not respond to our request for comment. The company provided the following statement by e-mail: “This is an opportunistic claim. Now that the economy has begun to stabilize, the Lehman estate is trying to re-trade the deal on the basis of a meritless argument.”
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.