Lehman Prime Brokerage Client Wins U.K. Ruling

Aug 2 2010 | 1:17pm ET

Hedge funds who learned that their assets at Lehman Brothers’ prime brokerage were not properly segregated after the investment bank collapsed should be treated the same way as those funds whose assets were properly protected, a British appeals court has ruled.

In a blow to the causes of both Lehman’s unsecured creditors and the clients of its prime brokerage, led by GLG Partners, whose assets were correctly ring-fenced from Lehman’s other assets, a U.K. Court of Appeal has ordered the administrators of Lehman Brothers International Europe to find those assets that should have been segregated and move them into the $2.16 billion pool already set aside for prime brokerage clients. The ruling overturns a December decision which, while blasting Lehman for failing the properly segregate the assets, still found that those funds were entitled to no protection and should be treated as unsecured creditors.

The ruling is a victory for hedge fund CRC Credit Fund which, along with Lehman Brothers and Lehman Brothers Finance, appealed the December verdict. The Court of Appeal has yet to decide if its decision can itself be appealed.

If the current ruling stands, both the unsecured creditors and those hedge funds whose assets were properly segregated stand to get back much less, and to get it back much later. CRC and the Lehman affiliates have claims totaling more than $3 billion.

“As a result of the court of appeal’s decision, the returns to segregated clients will be diluted and it could take years to resolve what goes into the pot and who is entitled to it,” Jennifer Marshall, a lawyer for GLG, told Bloomberg News. “No clear guidance is given as to how the administrators are to approach these issues and so it seems inevitable that they will have to go back to court.”

“That could have the effect of diminishing the general pool for unsecured creditors,” Arun Srivastava, a lawyer for one of the leaders of the unsecured creditors, Hong Leong Bank, sniffed to Bloomberg. “They’ll inevitably find more money than they would have otherwise, now that they’re looking for it.”


In Depth

Whisky Business: The Ultimate Liquid Alternative Investment

Sep 15 2014 | 7:02am ET

David Robertson knows his single-malt whisky—he was the Master Distiller at the...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.