Articles Posted in Lehman Brothers

The Federal Home Loan Bank of New York will pay Lehman Brothers and its Special Financing unit a $70M settlement in an interest-rate swaps case. The plaintiffs sued FHLBNY two years ago seeking over $150M that they claim they were owed related to their position on more than 350 swaps and options transactions.

Lehman filed for Chapter 11 bankruptcy protection in 2008. The move froze the markets while spurring the end of millions of derivative transactions in which it was involved. A few days later, when FHlBNY ended its swaps with Lehman, it did so with a $16.5B notional amount.

According to Lehman, due to interest rate fluctuations after its bankruptcy filing, FHLBNY returned and “cherry picked” other end dates. As a result, claims the plaintiff, the latter “massively understate” how much it owed Lehman.

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Pension funds, former employees, investment firms, and banks with unsecured claims against Lehman Brothers Holdings are finally getting an initial payout of $4.6 billion. That’s about 71% of the unsecured claims against the broker-dealer to be recovered. These creditors of the firm have waited years to get their money back, ever since investment bank went into bankruptcy in 2008 with $613 billion in liabilities.

Lehman’s collapse helped instigate the global financial crisis and it was Barclays (BARC) that bought the brokerage business. It’s trustee, James W. Giddens has already paid back brokerage customers the over $10 billion they were owed.

In total, the Lehman parent company and its units have paid $57.1 billion to unsecured creditors. The majority of creditors are expected to get back up to 35 cents on the dollar.

Lehman Brothers Holdings Inc. has arrived at an agreement with Klaus Tschira, the founder of SAP AG (SAP). The German software company had been the only holdout to a multibillion-dollar settlement with the firm’s former Swiss derivatives unit Lehman Brothers Finance AG. The deal should free up another $1.8 billion that can now go to the firm’s creditors.

When Lehman failed in September 2008, this became the largest bankruptcy in our nation’s history. Markets became troubled and the global financial crisis was started. Barclays PLC (BCS) bought Lehman’s main business.

Tschira had been in a dispute with the subsidiary for years over derivatives contracts that were canceled after Lehman collapsed in 2008. The disagreement was over the way the unit calculated dames related to the termination of certain forward contracts. While two entities, a nonprofit that Tschira controls and an investment vehicle that manages his money, accused the derivatives unit of owing them $798.7 million, the unit said that the entities were the ones that owed it money.

A judge in US bankruptcy court has approved the $767 million mortgage securities settlement reached between Lehman Brothers Holdings Inc. and Freddie Mac (FMCC). The deal involves a $1.2 billion claim over two loans made by the mortgage giant to Lehman prior to its collapse in 2008.

As part of the accord, Freddie will provide loan data to the failed investment bank so that Lehman can go after mortgage originators over alleged misrepresentations. Lehman will pay the $767 million in a one-time transaction.

Its bankruptcy was a main trigger to the 2008 global economic crisis. According to Matthew Cantor, chief general counsel of the unwinding estate, the bank has already paid creditors $60 billion, with more payouts.

It was nearly five years ago on September 15, 2008 when the public learned that Lehman Brothers had gone bankrupt, resulting in billions of dollars of losses on a financial system already struggling with a housing market that was failing, as well as a growing credit crisis. Also, Merrill Lynch (MER) would be forced to join with Bank of America (BAC), the US car industry was in trouble, and insurer AIG stood on the brink of collapse. Now, while there has the economy has somewhat recovered, many Americans can’t help but worry that such a financial meltdown could happen again.

Back then, Wachovia (WB) was also in peril of going down and Washington Mutual (WAMUQ) was failing miserably—to become the biggest US banking failure to date—and government and financial industry leaders scrambled to save what they could. Bailouts were issued and emergency measures taken including: a federal takeover of housing finance giants Freddie Mac and Fannie Mae, which kept the housing market going by allaying worries that the two entities would default on bonds,the guaranteeing of money market mutual funds that the then-trillion dollar industry depended on for the business short-term funding as well as retirement, and the setting up of the Troubled Asset Relief Program (allowing the Treasury to help put back confidence in banks via the buying of equities of securities in many of these banks and recapitalizing the system.

In a USA Today article, ex-US senator Christopher Dodd said that he believes there will be another crisis; only this one could also involve China, Brazil, and India—not just the US and the European continent. Meantime, while US Chamber of Commerce’s Center for Capital Markets Competitiveness CEO and President David Hirschmann said that a crisis as big as the one in 2008 is not as likely, he predicts there will still be failures. He also said that it is unclear whether we’ve established a better system for identifying problems and risks.

The liquidators of Lehman Brothers Australia want the Federal Court there to approve their plan that would allow the bank to pay $248M in securities losses that were sustained by 72 local charities, councils, private investors, and churches. Although the court held Lehman liable, no compensation has been issued because the financial firm went bankrupt.

Per that ruling, the Federal Court found that Lehman’s Australian arm misled customers during the sale of synthetic collateralized debt obligations. The court also said that Lehman Brothers subsidiary Grange Securities was in breach of its fiduciary duty and took part in deceptive and misleading behavior when it put the very complex CDOs in the councils’ portfolio. (Lehman had acquired Grange Securities and Grange Asset Management in early 2007, thereby also taking charge of managing current and past relationships, including the asset management and transactional services for the councils.) The court determined that the council clients’ “commercial naivety” in getting into these complex transactions were to Grange’s advantage.

Via the liquidators’ plan, creditors would get a portion of a $211 million payout. This is much more than the $43 million that Lehman had offered to pay. The payout would include $45 million from American professional indemnity insurers to Lehman, which would then disburse the funds to those it owes.

Lehman Brothers subsidiary Lehman Brothers Australia has been found liable for collateralized debt obligation losses sustained by 72 councils, churches, and charities during the global economic crisis. The class action securities lawsuit was led by three Australian counsels—Wingecarribee, Parkes and Swan City. A fixed settlement amount, however, has not yet been reached. The parties will have to meet to figure out the damages, and their submissions will then be presented to the Federal Court later this year. (Because the defendant, previously known as Grange Securities, is in liquidation, it cannot make any payments right now). The three lead plaintiffs had sought up to $209M (US dollars), which is how much they say was lost from the CDOs.

The majority of the CDOs that caused the investors losses had been purchased from Grange Securities before Lehman Brothers Australia acquired the firm in 2007, which is the year when the bond world started to fall apart as the global economic crisis began to unfold. The plaintiffs are claiming alleged breach of fiduciary duty, misconduct, and negligence for how the defendant marketed the synthetic derivative investments.

Federal Court Justice Steven Rares, who issued the ruling, said the CDOs were presented as if they were liquid like cash and safe investments even though they were, in fact, a risky, “sophisticated bet.” He said the plaintiffs were told that they would get their money back if they held on to the CDO’s until maturity and that high credit ratings placed the securities in the same arena as the AAA-rated Australian government’s debts. They also presented the investments that it recommended or made for the plaintiffs as suitable for investors that had conservative goals.

The judge noted that although that each of the three councils that were the lead plaintiffs had different complaints, in relation to two councils, the defendant was negligent in the advice and recommendation it offered them. Also, as financial advisor to two of the councils, the financial firm breached its fiduciary duty and took part in deceptive and misleading behavior when it pushed the CDOs as suitable for them.

Court finds Lehman Brothers Australia liable in crash, AFP, September 21, 2012

Court orders Lehman Brothers Australia liable
, Channel News Asia, September 21, 2012

More Blog Posts:

Stockbroker Securities Roundup: Criminal Convictions Vacated Against Six Charged in Front Running Scam and Citigroup Broker Cleared in $1B CDO Deal SEC Case, Stockbroker Fraud Blog, August 11, 2012

Some of the SEC Charges Against Investment Adviser Over Alleged Involvement In J.P. Morgan Securities LLC Collateralized Debt Obligation Are Dismissed, Institutional Investor Securities Blog, September 24, 2011

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLPn, Stockbroker Fraud Blog, September 30, 2008

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The U.S. District Court in Manhattan’s Judge Lewis A. Kaplan has approved a $40 million class action settlement in the residential mortgage-backed securities lawsuit against three individuals who used to be affiliated with Lehman Brothers Holdings Inc. (LEHMQ). The plaintiffs are pension and union groups, including Locals 302 and 612 of the International Union of Operating Engineers – Employers Construction Trust Fund, Boilermakers-Blacksmith National Pension Trust, and New Jersey Carpenters Health Fund. The deadline for class members to file their settlement claims is August 20, 2012.

The defendants, Samir Tabet, James J. Sullivan, and Mark L. Zusy, had previously worked for Lehman affiliate Structured Asset Securities Corp. They are accused of filing misleading Offering Documents about the credit quality of mortgage pass-through certificates that were worth billions of dollars. The certificates were issued in 2006 and 2007.

The plaintiffs had submitted their original institutional securities lawsuit prior to Lehman’s filing for bankruptcy in September 2008. This case is one of a number of class action complaints accusing the financial firm and its ex-executives of wrongdoing and negligence.

Per the terms of the RMBS settlement, the Lehman Brothers Estate is responsible for paying $8.3 million. Dow Jones News Services reports that an insurance policy for the financial firm’s ex-directors and former officers will pay the remaining $31.7 million.

When Lehman filed for Chapter 11 bankruptcy, this was considered a major catalyst for the global financial crisis that ensued. The firm, which emerged from bankruptcy protection this March, is now a liquidating company that is expected to spend the next years repaying its investors and creditors that have asserted over $300 billion in claims. Depending on the type of debt owed, a creditor may receive 21 cents/28 cents on the dollar. Also, Lehman is still a defendant in several securities lawsuits related to its bankruptcy and there are other claims against it that need to be resolved.

Last month, Judge Kaplan approved the use of $90 million in insurance to settle another lawsuit against Fuld, ex-finance chief Erin Callan, ex-president Joseph Gregory, former CFO Ian Lowitt, ex-chief risk officer Christopher O’Meara, and several former Lehman directors. The plaintiffs include pension funds, companies, and individuals located abroad. The investors had purchased $30 billion in Lehman debt and equity prior to the firm’s bankruptcy filing and their investments later failed.

Kaplan had initially refused to let the plaintiffs’ insurers pay the $90 million because he wanted to determine whether the securities settlement was a fair one. Now that the federal judge has signed off on it, the plaintiffs will not have to pay for the settlement out of pocket and they are released from the investors’ securities claims.

Judge Approves $40M Settlement with Ex-Lehman Execs, American Banker, June 22, 2012

The Lehman Settlement

Ex-Lehman Executives’ $90 Million Settlement Approved, Bloomberg, May 24, 2012

More Blog Posts:

Ex-Lehman Brothers Holdings Chief Executive Defends Request that Insurance Fund Pay Legal Bills, Stockbroker Fraud Blog, October 19, 2011

UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investor Securities Blog, April 12, 2011

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP, Stockbroker Fraud Blog, September 30, 2008

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The Financial Industry Regulatory Authority is fining UBS Financial Services, Inc. $2.5 million and ordering it to pay $8.25 million in restitution for allegedly misleading investors about the “principal protection” feature of 100% Principal-Protection Notes. Lehman Brothers Holdings Inc. issued the PPNs Holdings Inc. before it filed for bankruptcy in 2008.

FINRA contends that even as the credit crisis was getting worse, between March and June 2008 UBS advertised and described the notes as investments that were principal-protected while failing to make sure clients knew that they PPNs were unsecured obligations of Lehman and that the principal protection feature was subject to issuer credit risk. UBS also allegedly failed to:

• Properly notify its financial advisers of the impact the widening of credit default swaps was having on Lehman’s financial strength
• Sufficiently analyze how appropriate the Lehman-issued PPNs were for certain clients
• Set up a proper supervisory system for the sale of the Lehman-issued PPNs
• Provide proper training or appropriate written supervisory procedures and policies
• Provide adequate suitability procedures for determining who should invest

FINRA also says that UBS developed and used advertising collateral about the PPNs that misled certain clients, such as the suggestion that a return of principal was certain as long as clients held the product until it matured. FINRA claims that the reason that some UBS financial advisers gave incorrect information to customers was because they themselves didn’t fully understand the product.

FINRA says that because UBS’s suitability procedures were inadequate and certain PPN’s lacked risk profile requirements, the product was sold to investors who were not willing or shouldn’t have been allowed to take on the risks involved. More often than not it was these investors who were likely to depend on the Lehman PPNs’ “100% principal protection” feature that were “risk averse.”

By agreeing to settle, UBS is not denying or admitting to the charges.

Related Web Resources:
FINRA Fines UBS Financial Services $2.5 Million; Orders UBS to Pay Restitution of $8.25 Million for Omissions That Effectively Misled Investors in Sales of Lehman-Issued 100% Principal-Protection Notes, FINRA, April 11, 2011

UBS to shell out $10.75M to settle Lehman-related row, Investment News, April 11, 2011

More Blog Posts:
UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011

UBS Must Pay Couple $530,000 for Lehman Brothers-Backed Structured Notes, Institutional Investors Securities Blog, November 5, 2010

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP, Stockbroker Fraud Blog, September 30, 2008

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The California Public Employees’ Retirement System is suing Lehman Brothers Holdings Inc., its ex-executives, and a number of bond underwriters for fraud and of making materially false statements about mortgage-backed securities losses. CalPERS, a $229 billion public pension fund, owned about $700 million Lehman bonds and 3.9 million shares of Lehman bonds when Lehman filed for bankruptcy in September 2008. Because of the economic crisis, CalPERS funds lost $100 billion in value from September 2008 and March 2009.

In its securities fraud complaint, CalPERS accused Lehman of “dramatically” borrowing to fund its real estate investments from 2004 to 2007—high-risk activity that investors were not told about. Other defendants include ex-Lehman Chief Executive Richard S. Fuld Jr., ex-Lehman Chief Financial Officers Erin Callan and Christopher O’Meara, 9 Lehman directors, and 33 others firms, including Wells Fargo Securities, Citigroup Global Markets Inc., and Mellon Financial Markets. The defendants allegedly failed to disclose not just Lehman’s exposure to Alt-A lending and subprime, but also its mortgage-related assets’ true value.

This securities complaint is CalPERS second action against members of Wall Street that sold mortgage-backed securities. In July 2009, CAlPERS sued Standard & Poor’s, Moody’s Investors Services Inc., and Fitch Inc. The complaint accused the financial rating companies of giving top grades to bonds that ended up sustaining huge financial losses when the subprime mortgage securities market collapsed.

Also, CalPERS has a shareholder lawsuit against Bank of America Corp. (BAC) over its Merrill Lynch acquisition. The pension fund also has a case against BofA’s Countrywide Financial.

Related Web Resources:
Calpers Alleges Top Lehman Execs Misled On Exposures, Financials, The Wall Street Journal, February 8, 2011

CalPERS suit accuses Lehman Bros. of fraud, Los Angeles Times, February 9, 2011


Related Blog Posts About Pension Funds:
Quadrangle Cofounder and CalPERS Partner Steven Rattner Settles NY Pension Fund Corruption Probe for $10M, Institutional Investors Securities Blog, January 4, 2011

Securities Fraud Lawsuit Against UBS Securities LLC by Detroit Pension Funds Won’t Be Remanded to State Court, Says District Court, Institutional Investors Securities Blog, January 17, 2011

In Securities Fraud Case Against Morgan Stanley Pension Fund Doesn’t Have Standing to Bring Certain Claims, Says Court, Institutional Investors Securities Blog, October 4, 2010

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