In re Lehman Brothers Inc.,
Case No. 08-01420 (SCC) SIPA
State of the Estate
August 16, 2016
1
DISCLAIMER
This State of the Estate Presentation is intended to be read in conjunction
with the Trustee’s Fourteenth Interim Report, filed on April 28, 2016, and the
Liquidation Balance Sheet and Quarterly Report on the General Creditor
Claims Process, filed on July 29, 2016, available at www.lehmantrustee.com.
The information herein is based on the information available to the Trustee at this time, but this
information may be incomplete and should not be relied upon. This presentation was prepared
for purposes of presenting the Court with a status of the LBI liquidation proceeding as of the date
of the presentation and is not meant to be relied upon by investors or others as a complete
description of the LBI Estate’s condition (financial or otherwise), prospects, assets, or liabilities.
The information in this presentation will be updated, including any corrections, in connection with
future Interim Reports, Balance Sheets, and presentations to the Court. The information in this
presentation is not prepared in accordance with U.S. generally accepted accounting principles.
The realized value of certain assets may be zero or different from the estimates on which this
presentation is based. Selected balances and information presented herein have not and will not
be subject to audit or review by external accountants. The Trustee reserves all rights to revise this
presentation.
2
Overview
I.
Introduction: The Fog of Lehman
II.
Administration of Customer Estate: 100% Distributions
III.
Administration of General Creditor Estate: 38% Distributions, With More To Follow
IV.
Marshalling of Assets
V.
General Distributions and LBI Liquidation Balance Sheet
VI.
Interactions with Policy Makers, Regulators, Claimants, and Others
VII.
LBI Estate Wind-Down and Closure
VIII. Lessons and Recommendations
IX.
SIPC Oversight and the Benefits of SIPA
3
September 19, 2008
Immediately upon his appointment, the Trustee faced a liquidation of
unprecedented complexity amid the worst economic crisis since the Great
Depression.
On September 19, 2008, the Trustee was confronted by a multitude of issues:
•
Over 110,000 customer accounts with a value of over $100 billion that needed to be transferred
as quickly as possible to avoid catastrophic market disruption
•
The pre-negotiated sale of substantially all of LBI U.S. brokerage assets (but not all liabilities and
not all accounts) to Barclays
•
Competing claims between the Trustee, Barclays, LBIE, LBHI, and affiliates to various assets,
employees, systems, and other basic information
•
Massive claims and assets in Omnibus Accounts with LBIE subject to different legal rules, different
filing dates, and a lack of information regarding the accounts
•
Billions of dollars of assets held at various depositories around the globe that needed to be
marshalled
•
Billions of dollars of LBI proprietary financial transactions that needed to be unwound
•
Tens of thousands of potential customer and general creditor claims for billions of dollars
4
The Fog of Lehman
The early administration of the LBI bankruptcy was also marked by chaotic
conditions which the Bankruptcy Court termed the “Fog of Lehman.” This
referred to the challenges caused by huge gaps in available information, general
market unpredictability, various administrative obstacles, and the lack of prompt
transparency into counter party actions following the commencement of the
liquidation proceeding. Specifically, the Trustee faced the following hurdles upon
his appointment, which hamstrung the early administration of the LBI Estate:
•
The need to create a staff from scratch as LBI’s former employees were transferred to Barclays
as part of the Asset Purchase Agreement
•
Limited access to vital information and systems that were required to administer the estate
and transfer customer accounts; much of this information and many of these systems were
controlled by known or potential adversaries such as Barclays, LBIE, or LBHI and its affiliates
•
The liquidation of collateral with limited notice to the Trustee, limited transparency into the
liquidation process, and limited certainty as to the outcome of the liquidation
•
Limited to non-existent access to LBI’s assets or accounts at various financial institutions, and
limited or partial information on the status and balance of such assets and accounts
•
An unwillingness or inability by some foreign affiliates to coordinate on key matters including
the unwinding of financial transactions or information sharing
5
The LBI Estate Today
Since September 19, 2008, the Trustee has made extensive progress in the
administration of the LBI Estate, including:
100% – distributions to over 111,000 customers ($106 billion)
100% – distributions to secured and priority creditors ($253 million)
2008
38% – interim distributions to 4,800 unsecured creditors ($8.57 billion)
28,600 – general creditor and customer claims determined
(asserted value $200 billion)
$121.7 billion – administered assets
$839 million– assets remaining on hand
2016
$0 – no cost to SIPC or U.S. taxpayers
6
Substantial Completion
Although the LBI liquidation has now entered a phase of substantial completion,
the proceeding still remains a “mega-case”:
• Over $839 million in assets on hand, subject to reserves and internal controls
• 430 claims pending in various courts against which the Trustee maintains reserves of
$268 million for priority claims and $116 million for unsecured claims
• Asset sales to be concluded
• Continued subpoena responses and advisory updates to regulators and legislators
• Maintenance of systems, databases and depositories containing hundreds of
terabytes of data and information, and tens of thousands of paper documents
• The effectuation of further distributions to creditors
7
Overview of Customer Account Transfers
•
The Customer Account Transfers required the Trustee’s professionals to accumulate
customer-level detail on tens of thousands of customer accounts across a myriad of LBI
legacy systems and to establish a method to transmit this information and assets to
transferees. The Customer Account Transfers were completed with only limited access to
systems and basic information, and without former LBI employees.
•
Despite these hurdles, the Trustee’s professionals were able to substantially complete the
transfer of over 110,000 accounts with a value of over $92 billion within weeks of the
liquidation, avoiding market disruption and providing customers with access to their accounts
shortly after the largest bankruptcy in history.
PIM
(72,527 Accounts)
$43.2 Billion
PAM
(38,106 Accounts)
$45.5 Billion
Prime Brokerage
(287 Accounts)
$3.5 Billion
Barclays
Neuberger Berman
Various Broker-Dealers
8
PB Protocol
• Prime Brokerage Protocol (October 14, 2008): the Protocol Regarding Prime Brokerage Arrangements created a
consensual, voluntary process for the orderly transfer of prime brokerage accounts to operating broker-dealers.
The Prime Brokerage Protocol detailed the rules and procedures for reconciling accounts, closing out financial
instruments, and transferring account assets.
• Transfers Accomplished: 287 accounts with a value of approximately $3.5 billion. This represented 75% of LBI’s
prime brokerage business at the time of LBI’s failure.
• Regulatory Role: The Trustee’s professionals worked closely with SIPC, SIFMA, and the SEC, to develop the
process that identified and valued assets available for transfer and effectuated their transfer to solvent brokerdealers of the account holders’ designation.
• Account Holder Reconciliations: The Trustee’s professionals worked individually with holders of the prime
brokerage accounts to confirm account assets and liabilities and agree on transferable amounts and holdbacks
for non-reconciled liabilities. Due to the complex nature of the account holders’ trading, and their participation
in non SIPA-protected transactions, it was not simply a matter of transferring the entirety of the accounts.
• Worldwide Depository and Clearing Bank Cooperation: Assets related to the prime brokerage accounts were
located at depositories domestically and around the globe and were not all immediately available to the Trustee
to transfer. The Trustee negotiated with these depositories and clearing entities to make available billions in
initially-frozen assets, including cash collateral swaps that permitted the near-term transfer of customer
securities.
• The Power of SIPA: The success of the prime brokerage protocol and the ability of the Trustee to deliver
significant customer property to customers in advance of the claims process are significant testaments both to
the power of SIPA and the flexibility it affords to SIPA trustees, as well as to the expertise of the Trustee and his
professionals in executing the protocol in the best interest of LBI’s former customers.
9
Additional Protocols
• TBA Protocol (September 25, 2008 and October 9, 2008): The TBA
Protocols provided instructions for market participants with open TBA
Contracts on (i) how to terminate and close out the their TBA contracts, and
(ii) how to calculate and provide notice to the Trustee of their close-out
costs (i.e., a notice of the party’s damages for LBI’s failure to perform).
• International Protocol (June 18, 2009): The International Protocol called
for cooperation and sharing of information among the various Lehman
entities in insolvency proceedings around the globe and established a
Procedures Committee whose objective was to develop a methodology for
resolving intercompany claims between the Lehman entities. The
International Protocol was a helpful tool that facilitated information sharing
among the signatories and created a forum for settlement discussions, but
it was limited by the fact that not all former Lehman entities joined the
protocol, and the protocol could not remove most issues related to
intercompany claims.
10
LBIE CLAIMS
•
LBIE sought customer status for approximately $24 billion in claims, a sum that by itself exceeded all
prior SIPA proceedings in their entirety and that, if allowed, would have exceeded all assets in the
LBI Estate at the time of the claim filing.
•
The largest portion of the LBIE Claims sought to recover the value of certain “Omnibus Accounts.”
Prior to the bankruptcy, LBIE used LBI to clear and custody U.S. securities and cash positions on
behalf of LBIE’s clients, which were recorded on a net basis in certain Omnibus Accounts as if LBIE
were a single customer at LBI. LBI served solely as an agent for LBIE with respect to the Omnibus
Accounts and did not have the responsibility to determine who the beneficial owners were of the
property held in the Omnibus Accounts.
•
The complexity of the LBIE Claims cannot be understated. LBI operated for one week after LBIE
commenced insolvency proceedings. During that time, LBIE did not perform certain functions as it
would in the ordinary course of its business (such as covering short sales). This led a mismatch
between the netted balances and positions in the Omnibus Accounts at LBI and the aggregate
balances and positions in the individual LBIE Client Accounts maintained at LBIE.
•
In order to evaluate the LBIE Claim, the Trustee’s professionals undertook a three-year manual
reconciliation of LBI’s books and records with real world activity on an individual security level to
identify settled, canceled, and failed trades.
11
LBIE Settlement
•
On February 26, 2013, after lengthy negotiations, and with the support and encouragement of the
Bankruptcy Court, the Trustee and the Joint Administrators of the LBIE proceeding were able to
reach a Settlement Agreement that replaced LBIE’s asserted $24 billion claim with an allowed
customer claim of $7.5 billion for the benefit of LBIE’s underlying clients, a $500 million customer
claim for LBIE, and a general unsecured claim of $4 billion.
•
The LBIE Settlement also resolved the approximately 300 Duplicative Claims with an estimated
value of $13 billion that had been asserted by former LBIE clients against the LBI estate but were
duplicative of LBIE’s Claim for the value of the Omnibus Accounts.
•
Judge Peck referred to the resolution of the LBIE Claims and LBHI Claims as “one of the most
complex matters to ever be resolved, in history, at least in a commercial sense,” and by removing
uncertainty and the need for significant reserves, the LBIE Settlement was the “key” that opened
the door to distributions to customers and general creditors.
12
LBHI Settlement
•
LBHI and its affiliates asserted customer claims of approximately $20 billion and general creditor
claims of $20 billion against the LBI Estate.
•
On February 21, 2013, the Trustee and LBHI, with the assistance of the Bankruptcy Court, were able
to reach a Settlement Agreement that reduced LBHI’s customer claims to $2.3 billion and reduced
its general creditor claims to $14.2 billion.
•
The LBHI Settlement also resolved the dispute arising from the transfer of certain LBI subsidiaries
and intellectual property to a LBHI affiliate in exchange for a Payment-in-Kind Note, which had been
effected immediately prior to the Trustee’s appointment. Under the terms of the LBHI Settlement,
the distribution on LBHI’s customer claim was reduced by $350 million to reflect the value of the
transferred assets.
•
The LBHI Settlement was the culmination of a four-year reconciliation by the Trustee’s professionals
of the tens of thousands of transactions between LBI and LBHI and its affiliates. The extensive,
ongoing dialogue and information-sharing between the Trustee’s professionals and representatives
of LBHI resulted in a substantial reduction of claims and narrowed the legal and factual issues in
dispute, which made the eventual settlement possible.
•
The LBHI Settlement removed the uncertainty caused by the LBHI Claims and eliminated the need
to maintain multi-billion dollar reserves, which in turn greatly enhanced the Trustee’s ability to
make customer distributions and general creditor distributions.
13
Other Affiliate Settlements
The Trustee addressed 49 claims asserted by other Lehman affiliates through a
series of settlements and claims determinations which resolved nearly $4 billion
in asserted customer claims and tens of billions in asserted general creditor
claims for allowed customer claims aggregating $256 million and allowed general
creditor claims aggregating to $2 billion.
•
Lehman Brothers Bankhaus AG: Settlement reduced $1.35 billion of asserted customer and
unsecured claims to an allowed general creditor claim of $550 million.
•
Lehman Brothers Finance A.G. (LBF): Settlement replaced a $6 billion asserted customer claim
with a $189.9 million allowed customer claim and a $360 million allowed unsecured general
creditor claim.
•
Lehman Brothers Japan Inc.: Settlement (i) reduced $543 million of asserted customer and
unsecured claims to an allowed customer claim of $59 million and an unsecured creditor claim
of $457 million, and (ii) provided for the return of $173 million in assets to the LBI Estate.
•
Lehman Hong Kong Affiliates: Settlement (i) reduced $405 million of asserted customer and
unsecured claims to an allowed unsecured general creditor claim of $233 million, and (ii)
provided for the return of $71 million to the LBI Estate.
14
Processing Customer Claims
•
Although the Customer Account Transfers made the vast majority of LBI customers
whole, institutional accounts and accounts that Barclays declined to accept based on
their composition, complexity, or apparent lack of value were not included in the
Customer Account Transfers. These account holders filed claims seeking customer
status under SIPA.
•
To determine these remaining customer claims, most of which were based on
complicated financial products, the Trustee’s professionals employed a multi-tiered
review process:
–
Tier One (Deloitte triage): Deloitte researched and proposed a claim determination.
–
Tier Two (HHR legal determination): HHR reviewed Deloitte’s recommendation and approved the
determination or requested that Deloitte conduct additional research.
–
Tier Three (SIPC review and approval): SIPC reviewed HHR’s recommendation and either approved the
recommended determination or requested additional information.
Processing Customer Claims: COMPLETED – over 14,000 customer claims determined
12/1/08
Claim Forms
Available
6/1/09
Final Customer
Claim Bar Date
3/1/10
All Non-Affiliate Claims Determined
5/1/11
Completion of Customer Claims
15
Customer Claim Precedents
The LBI Liquidation has presented a number of matters of first impression that established key
precedents for future SIPA Liquidations :
• “Repo” Claims: Bankruptcy Court held that claims for securities related to repurchase
agreements were not entitled to customer protection under SIPA. The Bankruptcy Court’s
holding was affirmed by the District Court and the Second Circuit on appeal, and the
Supreme Court denied certiorari.
• “TBA” Trade Claims: Bankruptcy Court held that claims relating to settled on deliveryversus-payment “to be announced” contracts do not qualify as customer transactions and
therefore are not entitled to SIPA coverage.
• “Soft Dollar” Claims: Bankruptcy Court held that claims based upon commission credits
held in soft dollar accounts do not qualify for treatment as customer claims under SIPA.
• “Forex” Claims: District Court held that the cash balance related to foreign currency
transactions was not entitled to customer protection under SIPA.
• “Short Valuation” Claims: Bankruptcy Court held that short positions must be valued as of
the Filing Date like all other credits and debits in a customer’s account for the purpose of
determining customer claims.
16
Allocation Between Customer and General Estate
•
The Allocation Order entered on April 16, 2013 fixed the aggregate fund of
customer property by approving the allocation of $15.2 billion in cash and
securities to the customer estate, and allowed the Trustee to make 100%
distributions on allowed customer claims beginning on June 7, 2013, and to
establish reserves on claims that were unresolved.
•
The Allocation Order also approved the Trustee’s proposed distribution
methodology, under which the Trustee satisfied allowed customer claims with inkind securities or through cash-in-lieu of securities to the extent that securities
were unavailable.
•
Additionally, the Allocation Order directed the Trustee to allocate and distribute
to customers cash dividends and interest received by the LBI Estate following the
petition date using a “follow the security” methodology whereby customers that
received securities via the customer distributions also received the post-petition
cash generated by the security (to the extent received by the Trustee).
•
The Allocation Order also endorsed important SIPA legal principles and provided
certainty and finality to the distribution process.
17
Allowed Customer Claims Summary
$500
$3,153
$2,320
$256
$7,242
Account Transfers
LBI Customer Claims
UK Client Customer Claims
LBIE Customer Claim
LBHI Customer Claims
$92,000
Other Affiliate Customer Claims
(all amounts in millions)
•
In total, the Trustee resolved over 125,000 customer claims with asserted values of over $180 billion.
•
Outside of the account transfers, the Trustee’s professionals distributed over $13.4 billion of customer
assets to approximately 1,000 customers.
18
General Creditor Claims Process
•
As a result of the Barclays Transaction, a relatively limited number of claims were filed by former employees or
trade vendors; the majority of the general creditor claims asserted against the LBI general estate arose from
complex financial transactions or presented other unique legal issues.
•
Accordingly, the LBI general claims review process was unlike any previous claims process and required the
Trustee’s professionals to review, reconcile, and determine over 14,700 general creditor claims with an asserted
value of $129 billion.
•
Consistent with the Bankruptcy Code, unsecured claims processing did not fully commence until after the
Allocation Order provided a reasonable expectation of distributions to unsecured creditors
This process included:
–
The allowance or settlement of 4,825 claims with an asserted value of $22.8 billion
–
The disallowance of 9,790 claims with an asserted value of $58.7 billion
–
The filing of 274 omnibus objections
–
The resolution of 57 claims through Alternative Dispute Resolutions and Mediations
Processing General Creditor Claims –14,700 General Creditor Claims determined to date
12/1/08
GC Claim Forms
Mailed
6/1/09
Bar Date
3/1/2013
4/16/2013
GC Settlement Proc. Allocation
Approved
Order Entered
9/1/13
ADR Proc.
Approved
10/31/13
Admin Bar
Date
12/1/2014
Final Omnibus
Objection
6/1/15
All claims resolved or
objected to 19
Remaining General Creditor Claims
Claims*
# of
Claims
Capped Amounts
Claim Description
Claim Status
ESEP Consolidated Adversary
Proceeding (Arbitration)
381
SAP: $261,073,361.98
GUC: $10,299,052.75
Total: $271,372,414
Claims for deferred compensation pursuant to Pending Oral Argument Before Second
the Executive and Select Employee Deferred
Circuit.
Compensation Plan.
Bonus/Contractual Wage Claims
(Amended Objection 1EE, LLC, and
Judkins Claims)
3
SAP: $27,334.00
GUC: $87,428,221.00
Total: $87,455,555.00
Claims are for post-Filing Date bonuses and
wages claimed by LBI employees who
transferred to Barclays.
On appeal to the Second Circuit
Equity Award Claims (Various
Omnibus Objections)
35
SAP: $3,614,135.61
GUC: $20,169,419.77
Total: $23,783,555.38
Claims related to equity awards, restricted
stock units, and other equity-related
compensation.
Appeal pending in District Court.
ACATS Amended Claims (Two
Hundred Sixtieth Omnibus
Objection)
5
SAP: $0.00
GUC: $71,015,920.04
Total: $71,015,920.04
Claims relating to account transfers through
the Automated Customer Account Transfer
Service (“ACATS”).
Sub Judice before the Bankruptcy Court.
Deutsche Bank FX Claim (Two
Hundred Eighteenth Omnibus
Objection)
1
SAP: $0.00
GUC: $56,126,998.76
Total: $56,126,998.76
Claim for loss incurred with alleged failure of a Parties are conducting discovery in
FX transaction.
Bankruptcy Court.
Antoncic Employee Claim (Two
Hundred Sixty-Seventh Omnibus
Objection)
1
SAP: $92,336.27
GUC: $13,758,125.00
Total: $13,850,461.27
Former LBI employee claim seeking
compensation for a bonus.
Parties are conducting discovery in
Bankruptcy Court.
Barclays Global Investors (Two
Hundred Seventy-Third Omnibus
Objection)
1
SAP: $0.00
GUC: $31,096,891.69
Total: $31,096,891.69
Reclassified claim for shortfall in collateral,
unpaid fees expenses, and dividends and
corporate actions.
Settlement filed with Bankruptcy Court
for approval.
Goldman Sachs (Two Hundred SixtyFourth Omnibus Objection)
2
SAP: $0.00
GUC: $12,054,346.05
Total: $12,054,346.05
Claims seeking contribution in connection
with securities fraud cases where LBI was counderwriter.
Settled in principle subject to
documentation
*Excludes Internal Revenue Service Claim (documenting settlement papers ongoing).
20
Noteworthy Precedents
•
Triangular Setoff: Bankruptcy Court held that a “triangular setoff” does not satisfy the
Bankruptcy Code’s mutuality requirement, and that the Bankruptcy Code’s safe-harbor
provisions do not eliminate the mutuality requirement in connection with setoffs under
financial contracts.
•
Underwriter Claims: The Second Circuit affirmed the District Court and Bankruptcy
Court and held that $275 million claims for indemnity and contribution by underwriters
of LBHI securities arising from securities of a debtor’s affiliate must be subordinated.
•
Late Filed Claims: The Bankruptcy Court held that the six-month time limitation for filing
claims in SIPA proceedings is mandatory and must be construed strictly. The Court found
that it would be an abuse of discretion to grant exceptional or equitable relief for latefiled claims.
•
Transferee Bonus: The District Court held that there would be no double recoveries by
the test claimants and that LBI’s liability to claimants was discharged if (i) the Claimant
was an employee transferred to Barclays, and (ii) the payment was made in respect of
the Claimant’s LBI bonus.
21
Marshalling of Assets
•
The administration of the LBI Estate began with a significant asset deficit that required a $10 million
advance from SIPC to cover initial administrative expenses.
•
As a result of the Trustee’s marshalling of assets, over $121.7 billion has been administered, the SIPC
advance was long ago repaid, the full value of customer property was realized, and a substantial
portion of the book value of LBI’s assets was realized despite losses on the Barclays transaction,
billions of dollars of overvalued assets, and limited realization of receivables from Lehman affiliates.
$121.7
billion
$0
- $10 million SIPC advance, later repaid
September 19, 2008
June 30, 2016 22
Significant Asset Recoveries
Major asset recoveries made as part of the Trustee’s marshalling efforts include:
•
DTCC: The negotiated return of over $2.5 billion in connection with the wind-down and close
out of LBI’s accounts at the DTCC and the collection of post-petition accruals on securities
•
Unwinds: Recoveries from the unwinding of LBI financial product transactions resulting in the
recovery of over $4.8 billion
•
Lehman Affiliate Recoveries: Recoveries of over $600 million from former Lehman affiliates as
a result of allowed claims and settlements
•
JPMorgan Chase: Settlement resulting in recovery of $860 million
•
Citibank: Settlement resulting in recovery of $360 million
•
RBS: Settlement resulting in recovery of $215 million
•
UBS: Order compelling turnover of $23 million
•
Customer Receivables: Substantial completion of recovery of $54 million of open and
unsettled customer receivables
23
Barclays Transaction
•
The emergency transaction between Lehman Brothers Holdings Inc. and Barclays Capital
Inc. in the days and hours before the liquidation, which is set forth in the Asset Purchase
Agreement (“APA”), was undertaken in some of the most dire circumstances in the
nation’s financial history and under the chaotic conditions of the Fog of Lehman.
•
The Barclays Transaction provided a number of benefits to the LBI Estate including:
–
Enabling a significant portion of LBI’s customers to transition to a new, solvent broker-dealer
–
Providing for the continued employment to several thousand former Lehman personnel, thereby reducing
potential claims against the estate
–
Relieving the general estate of approximately $2.4 billion of other potential claims
•
However, the Trustee was only able to access basic information from LBI’s legacy systems
through the negotiation of a separate court-approved Transition Service Agreement,
which was expensive, cumbersome, and severely impacted the efficiency of the Trustee’s
administration and caused significant delays.
•
Additionally, shortly following the execution of the APA, disputes arose between the
Trustee and Barclays over whether Barclays had purchased certain assets and assumed
certain obligations.
•
As a result, Barclays and the Trustee pursued the claims for over six years in the
Bankruptcy Court, District Court, Second Circuit, and the Supreme Court.
24
Barclays Settlement
•
On June 5, 2015, the Trustee and Barclays agreed to a global settlement that resolved
all ongoing and potential litigation. As a result of the Barclays Settlement:
– The Trustee paid Barclays approximately $1.3 billion in margin assets that Barclays was entitled
to under rulings issued by the District Court and Second Circuit; and
– The Trustee released $583 million from the Barclays litigation reserve to LBI’s general estate,
which allowed the Trustee to effectuate a third interim distribution to general creditors.
Ultimately, the transaction had a significant negative impact on the LBI general estate:
ASSETS BARCLAYS
ACQUIRED FROM LBI
$4.5 billion net value of repurchase agreement collateral
$769 million in Rule 15c3-3 Assets
$2.6 billion in Clearance Box Assets
$5.3 billion in Margin Assets
72,527 customer accounts, with assets of $43 billion
10,000 Lehman employees
Intellectual property rights
Total = $11.869+ billion, high worth customer accounts,
employees, IP rights, position in North American market
CONSIDERATION
PAID BY BARCLAYS
$250 million in cash paid to DTCC
$1.95 billion in employee bonus, severance, and tax obligations,
paid to third parties
$238 million in contract cure liabilities, paid to third parties
Total = $2.438 billion paid to third parties, on account of LBI
obligations ($0 paid directly to LBI)
25
Residual Asset Sales
•
Consistent with his goal to maximize the value of the LBI Estate, the Trustee implemented a
strategy to liquidate the assets of the estate that were not set aside for customers to generate
cash to satisfy creditor claims.
– Liquid Securities Sales: The Trustee retained Blackrock Financial Management Inc. to assist
with the sale of more liquid securities. Blackrock executed over 9,000 trades of 4,200 unique
CUSIPs, resulting in sale totaling more then $7 billion.
– Illiquid Securities Sales: The Trustee retained Miller Buckfire & Co. LLC, to assist with the sale
of less liquid or illiquid securities. Through a series of 11 public auctions, Miller Buckfire sold or
disposed of 2,274 securities resulting in settled cash proceeds of $437 million.
– Other Sales: The Trustee’s professionals have also sold other assets to assist the funding of
customer and general estate distributions including:
• The sale of LBI’s interest in Navigator Holdings Ltd. for $110 million
• The sale of LBI’s interest in certain Invicta Notes for $57 million
• The sale of LBI’s allowed claim against Lehman Brothers Europe Limited for £35 million
•
The Trustee’s professionals are working to monetize the remaining residual assets of the LBI
Estate to fund additional distributions to creditors including:
– The pending sale of LBI’s claims into various bankruptcy estates
– A contemplated sale process for LBI’s class action claims, FINRA arbitrations, settlements, and
other future payment streams, which is currently planned for the fourth quarter of 2016
26
General Creditor Distributions Overview
July 2014
•
$253 million resulting in 100% payment to Secured, Administrative,
and Priority claims
Sept. 2014
•
$3.835 billion resulting in 17% payment to unsecured creditors
March 2015
•
$2.256 billion resulting in 27% payment to unsecured creditors
Sept. 2015
•
$1.805 billion resulting in 35% payment to unsecured creditors
June 2016
•
$674 million resulting in 38% payment to unsecured creditors
•
In total, the Trustee has made more then $8.8 billion in distributions to general estate creditors.
•
Future general unsecured creditor distributions are principally contingent on the outcome of pending
litigations.
27
Liquidation Balance Sheet as of June 30, 2016
In Millions
Fund of
Customer
Property
General Estate
Total
Assets
Cash and Cash Equivalents
$78
$761
$839
Securities
$0
$0
$0
Total Assets
$78
$761
$839
Liabilities
Customer Claims:
Allowed Pending Distributions:
Disputed Claims:
$0
$0
$63
$63
General Creditor Claims:
Secured*
$256
$256
Priority*
$12
$12
$6
$6
$14,319
$14,319
$229
$229
$14,822
$14,885
Administrative*
Unsecured*
Administrative Expense Reserve
Total Liabilities
$63
*Net of amounts distributed. The total (gross) general unsecured liabilities was $22.884 billion as of June 30, 2016.
+
Unaudited – Accompanying Notes available at ECF No. 13765
28
Congressional, Regulatory, and Industry Outreach
•
Updates and Briefings: The Trustee and his professionals, in coordination with SIPC, regularly
updated various U.S. and international policy makers and regulators on the status of the
liquidation and provided recommendations to avoid future broker-dealer failures including regular
updates to, and meetings with, Congressional Committees, the Federal Reserve, FINRA, the SEC,
the CFTC, and the FSA/Bank of England.
–
In particular, the SEC was highly active in early stages of the proceeding in assessing customer asset
protections and related matters.
•
Information Request: Over the course of the liquidation, the Trustee has made a total of over 980
document productions in response to approximately 1,836 governmental and non-party requests,
representing over 2 million pages and 220 gigabytes of information.
•
Responsiveness to Claimants and the Public: Throughout the liquidation, the Trustee has
maintained channels of communication with customers, creditors, and the public and has
responded to over ten thousand unique inquires from interested parties.
•
Misdirected Wires: Since the commencement of the liquidation proceeding, the Trustee has
returned over 950 misdirected wires with an aggregate value of $617 million made pursuant to
Court authorized procedures.
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LBI Estate Wind-Down
•
The Trustee’s administrative office in lower Manhattan was closed in July
2015. Since then, the Trustee has not maintained any office space.
•
All employee contracts with the LBI Estate concluded as of April 2016. The
Trustee does not employ any individuals to assist with the remaining winddown efforts.
•
The Trustee has terminated numerous LBI custodial and vendor
agreements, resulting in further cost savings to the LBI Estate.
•
Nearly all special counsel engagements have concluded, and the Miller
Buckfire and BlackRock engagements are complete.
•
Two Court-approved data abandonment motions have been effectuated,
resulting in significant savings to the estate, and further abandonment
motions are expected.
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Closure of the Estate
At the appropriate time, the Trustee will take the following actions to close
out the LBI proceeding:
•
Obtain approval of final distribution motion and effectuation of final distribution
•
Complete data abandonment program and arrange for retention of certain documents
and data required to be maintained under applicable law and guidelines
•
Close remaining bank accounts and file final tax returns
•
Move to discharge the Trustee and close the estate
The Trustee is committed to closing the estate as promptly as possible and
will consider the potential for additional distributions every six months.
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LBI Lessons Learned
Pursuant to SIPA § 78fff-1(d)(1), the Trustee conducted a detailed investigation
into the events and transactions that precipitated the collapse of Lehman,
including the review of hundreds of thousands of documents and interviews of
over 300 former LBI personnel. The findings of this investigation are contained
in the Trustee’s Preliminary Investigation Report and Recommendations and the
Trustee’s Preliminary Realization Report.
Based on his investigation, the Trustee has made recommendations for reform including:
•
Broker-dealer pre-liquidation plans
•
Pre-liquidation negotiations and provisions on mechanics of asset transfers
•
Balancing clearing banks’ and others’ safe-harbor rights against the need for transparency
•
Improvement of clearing agencies’ emergency rules and operations
•
Increasing SIPC’s financial resources and borrowing authority
•
Statutory reform to address issues related to Trustee’s standing to assert claims for the recovery of
customer property on behalf of former customers
•
Recommendations for short-term reinstatement of automatic stay
•
Rational rules for unwinding outstanding non-customer financial transactions
•
Establishing protocol for affiliate meetings to resolve cross-border claims, and promote frequent
meetings with other creditor groups and regulators
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SIPC Modernization Task Force
The Trustee also served on the SIPC Modernization Task Force along with several other
investor advocates, regulatory specialists, and academic experts. The Task Force issued a
report in February 2012 that included 15 recommendations on how to amend and improve
SIPA based on lessons learned from the Lehman liquidation and other recent SIPA cases,
including:
• Increasing SIPC’s maximum coverage from $500,000 to $1.3 million and tying
future coverage limits to inflation, which would increase the protection for
customers to the level necessary to protect non-professional investors
• Eliminating the distinction between claims for cash and claims for securities to
resolve the potential disparate treatment of customers and to increase the
amount of protection available to customers of broker-dealers
• Promoting greater international cooperation to address gaps between protections
afforded customers in U.S. and foreign countries, such as the United Kingdom,
arising largely from differences in insolvency laws and the absence of clear legal
precedent
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SIPC
SIPC Oversees the Liquidation Proceeding:
• Through regular and periodic meetings, preparation of
various forms, and otherwise, the Trustee is in virtually
constant contact with SIPC
• SIPC personnel routinely meet with the Trustee and his
counsel and staff to review the status of the liquidation and
work on discrete projects
• SIPC reviews all bills and expenses of the liquidation and
provides its recommendation to the Court
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SIPC
SIPC reports regularly to the Securities and Exchange Commission, including:
•
SIPA §78ggg(c) – Examinations and Reports – The SEC oversees SIPC, through examination,
inspections, and otherwise.
•
As part of that process, “SIPC shall submit to the Commission a written report relative to the
conduct of its business ….”
•
“The Commission shall transmit such report to the President and the Congress with such
comment thereon as the Commission may deem appropriate.”
SIPC reports regularly to Congress, including:
•
U.S. Senate Committee on Banking, Housing and Urban Affairs
•
U.S. House Financial Services Committee
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SIPC and FDIC Rule Proposal
•
Pursuant to section 205 of Title II of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, SIPC and the FDIC worked together to develop
proposed rules intended to provide a more efficient liquidation process for
large broker-dealers.
•
The rule was opened to a comment period in March 2016 to allow market
participants and other interested parties to provide responses to the
proposed rules.
•
The comment period was closed in May 2016, and SIPC and the FDIC are now
working to implement the suggestions received from interested parties.
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Additional Information
• Report of the Trustee’s Investigation and Recommendations, August
25, 2010, the authoritative analysis of the causes of LBI’s collapse
and lessons learned
• Trustee’s Realization Report, February 23, 2015, summarizes estate
administration and explains unsecured creditor losses
• www.lehmantrustee.com updated daily throughout the liquidation
• www.sipc.org providing information on SIPC and SIPA
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