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BSF Represents Barclays in Multi-Billion Dollar Lehman Brothers Purchase Litigation

In September 2008, as the financial crisis reached its apex on Wall Street, and Main Street braced itself for the reverberations, Barclays Capital emerged as the only financial institution willing to purchase Lehman Brothers' North American operations. At the time, regulators, along with Lehman Brothers itself, supported the sale as critical to containing further panic in the markets, preserving value for creditors, maintaining a stable broker-dealer for more than 70,000 customers, and saving the jobs of thousands of Lehman employees.

Yet, a year later, Lehman Brothers, represented by different lawyers than those who handled the sale, sued Barclays in bankruptcy court, claiming that the British bank received a so-called secret windfall in the deal. Lehman seeks to claw back over $5 billion and to justify withholding approximately $3 billion in undelivered assets owed to Barclays.

Barclays engaged BSF managing partner Jonathan Schiller to defend it in the litigation that followed the deal and to recover its undelivered assets. An evidentiary hearing has been scheduled for April 2010.

The core of Lehman's claim is as follows: At the insistence of the Federal Reserve, Barclays replaced the Fed as Lehman's lender of last resort, stepping into the Fed's shoes in its existing repo by lending Lehman $45 billion in cash and receiving in exchange securities marked at approximately $50 billion. That $5 billion haircut is alleged to have constituted a secret windfall for Barclays.

But in a late January filing, BSF lawyers showed that there was no secret windfall.  To the contrary, the $5 billion haircut was known to all parties and was, in any event, a fiction based on Lehman's unrealistically high, stale marks. 

On behalf of Barclays, BSF argues that the movants merely wish to renegotiate a deal they fully understood and approved of more than a year ago.  In the filing, BSF lawyers argued that the two sides knew that the securities were of uncertain value, but were clearly worth far less than the $50 billion marked value.

Adding weight to Barclays' defense is the testimony of two key players who negotiated the deal on Lehman's behalf and now defend its integrity: Weil, Gotshal & Manges' Harvey Miller, the leading bankruptcy lawyer who was Lehman's lead lawyer on the deal and remains Lehman's lead bankruptcy lawyer today; and Barry Ridings of Lazard, Lehman's financial adviser.

In his deposition, Miller testified, "The values were fluctuating. The figures were, I say, not reliable, and it was a deal to buy the business, not a balance sheet deal." Miller also testified that it was well-known that Lehman was "aggressive" in marking its assets.

BSF's Schiller asked Ridings, "To your knowledge, there was no limitation on whether Barclays could profit from this trade, correct?"  "That's correct," Ridings said. "Just to be clear, if Barclays lost money on this transaction, it would have been the end of the U.S. capital markets."

Statements like those of Miller and Ridings, wrote The Wall Street Journal, "appear to undermine Lehman's position that Barclays reaped an improper windfall from the deal."

As part of the litigation, Barclays Capital is pursuing its claim that Lehman failed to deliver approximately $3 billion in assets that Barclays purchased under the sale agreement approved by the bankruptcy court.

In addition to Schiller and partners Hamish Hume, Jack Stern and Jonathan Shaw, the litigation team also includes partners Todd Thomas, Christopher Green, William Dzurilla, Amy Neuhardt, and Tricia Bloomer; as well as counsel Jonathan Davenport and Laurie Josephs and associates Louis Smith, Michelle Sekowski, Richard Bettan, Jonathan Krisbergh, Andrew Borchini, Ian Crichton, Heather King, and Camille Oberkampf.

Related Lawyers: Jonathan D. Schiller, Jonathan M. Shaw, W. Todd Thomas, Christopher M. Green, William T. Dzurilla, Amy L. Neuhardt, Tricia J. Bloomer, Jonathan W. Davenport, , , , , , , , ,

Related Practices: Litigation, Corporate