Lehman Trustee Begins Third Payout to Brokerage Creditors WSJ Sept. 9, 2015
http://www.wsj.com/articles/lehman-trustee-begins-third-payout-to-brokerage-creditors-1441805748
The trustee in charge of Lehman Brothers Inc. on Wednesday began distributing about $1.75 billion more to the defunct brokerage’s unsecured creditors, the third such distribution since he finished paying off the brokerage’s customers last year.
The payments, approved by Lehman’s bankruptcy judge early last month, will bring the total amount returned to unsecured creditors to around $7.65 billion, a recovery of about 35 cents on the dollar. Combined with distributions made to customers, the total amount recovered in the brokerage’s liquidation will be around $114 billion.
“The third multibillion-dollar distribution to general creditors is under way as winding down the estate moves ahead,” said the trustee, James W. Giddens. “We will continue to resolve remaining claims to maximize potential future distributions and successfully conclude the largest broker-dealer liquidation in history.”
Judge Shelley C. Chapman of U.S. Bankruptcy Court in Manhattan commended Mr. Giddens for his efforts at the hearing last month, calling it an “incredibly extraordinary accomplishment.”
Mr. Giddens had said that after this third distribution is complete, further payouts would be contingent on winning or settling pending litigation, which would free up funds currently on reserve.
The trustee began paying back creditors—former employees, pension funds, banks and investment firms with unsecured claims against the brokerage—last summer after making the brokerage’s customers whole.
The distinction between “customer” and “unsecured creditor” is a crucial one in the Lehman case. Customer claims get paid before creditor claims under the law covering failed broker-dealers, the Securities Investor Protection Act of 1970.
Customers got 100% of their money back, as have those holding secured and priority claims. Unsecured creditors get much less, albeit much more than most parties in the case originally expected.
As Mr. Giddens has resolved and settled more claims, he has asked Judge Chapman to approve distributions to the creditors.
Individual customers of the U.S. brokerage, which is under the purview of the bankruptcy court but not technically in bankruptcy protection, received about $92.3 billion almost immediately after Lehman collapsed. In all, Mr. Giddens will have exceeded his goal of returning $110 billion by nearly $4 billion when this distribution is finished.
Lehman, once the nation’s fourth-largest investment bank by assets under management, collapsed into the largest bankruptcy ever in September 2008 with $613 billion in liabilities.
The filing sent markets into turmoil and helped trigger a global financial crisis. Lehman’s brokerage business was quickly sold to Barclays PLC, and the company’s New York-based holding company officially exited bankruptcy in 2012.
The Lehman estate, which itself has paid back around $100 billion to creditors, is still winding down and selling its remaining holdings, a process that is expected to continue for several more years. Judge Chapman is overseeing both proceedings.
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