Friday, 25 July 2014
Last updated 1 hour ago
Mar 1 2012 | 12:00pm ET
The U.K.'s highest court has ruled that all Lehman Brothers clients can share in a pool of the bankrupt investment bank's segregated client assets, a victory for some hedge funds and a stinging defeat for others.
The U.K. Supreme Court ruled Lehman customers, including prime brokerage clients, can share in the US$2 billion pool, and not just those clients whose capital was properly segregated. Judge John Dyson wrote that "all client money is subject to a trust that arises upon receipt of the money by the firm," making it irrelevant whether Lehman properly ring-fenced a client's money or not.
Dyson admitted that, under his ruling, the Lehman collapse created a "cataclysmic shift of beneficial ownership." But all clients must equally share in the misfortune if the wrongdoing was the fault of the firm, he said.
The ruling is a major victory for hedge fund CRC Credit, as well as for Lehman's U.S. and Swiss businesses. On the other hand, it’s a tough defeat for GLG Partners, which argued the case of clients whose money was properly segregated, and the receiver for Lehman Brothers International (Europe), where the client money was actually housed.
GLG's lawyer, Jennifer Marshall, warned that the ruling would have a chilling effect on British investment firms and investors, citing one of the Supreme Court's dissenting judges. Judge Robert Walker wrote that the decision "makes investment banking more of a lottery than even its fiercest critics have supposed."
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…