Lehman Segregated Accounts Appeal May Delay Hedge Fund Payouts

Date: Wednesday, January 27, 2010
Author: Lindsay Fortado, Bloomberg

Lehman Brothers International Europe’s administrators said an appeal in a London lawsuit may delay payouts to some clients of the failed investment bank.

Lehman Brothers Holdings Inc., two of its affiliates and CRC Credit Fund Ltd. are appealing a ruling that affects the return of funds, PricewaterhouseCoopers said in a statement yesterday. A London court ruled last month that the European unit failed to properly segregate assets, jeopardizing the ability of some clients to claim money that should have been ring-fenced.

“The breadth of the issues subject to appeal is such that the appeal will impact on the joint administrators’ timing of making an interim distribution of client money,” PwC said in the statement.

PwC’s lawyer, David Ereira, said at a hearing in December that the administrators wanted to distribute some assets after a March 19 deadline for making claims on assets. Those payouts will be delayed during the appeal, PwC spokeswoman Stephanie Howel said yesterday.

Clients that should have had their money put into separate accounts by LBIE, and didn’t, can’t claim money from the pool of client funds controlled by PwC, Justice Michael Briggs in London said in a judgment Dec. 15.

Lehman Brothers Holdings, Lehman Brothers Inc., Lehman Brothers Finance AG and CRC Credit Fund, which represents clients who didn’t have their money properly segregated, filed notices of appeal Jan. 15, PwC said.

LBIE failed to segregate “vast sums” of client money, Briggs said in the ruling last month meant to give guidance to PwC on how it should handle money the investment bank was holding for clients when it collapsed last year.

The Lehman units are the “most significant group of clients whose money LBIE failed to segregate,” and have made claims of more than $3 billion, Briggs said in his judgment. The amount LBIE held in segregated accounts when it went into administration in September 2008 was $2.16 billion.

The case is: In the matter of Lehman Brothers International Europe, 7942/08, High Court of Justice, Chancery Division.

To contact the reporter for this story: Lindsay Fortado in London at lfortado@bloomberg.net.