Client Assets Update - Securities Investor Protection Corporation (‘SIPC’) Customer Omnibus Claim – 21/03/2012

This update concerns LBIE's SIPC Customer Omnibus Claim (“Omnibus Claim") against Lehman Brothers, Inc. ("LBI"). LBI is a US broker dealer affiliate subject to SIPA Trustee stewardship. For further information on LBI and the SIPC process, please refer to the Joint Administrator’s six monthly Progress Reports. Alternatively, the SIPA Trustee (“Trustee”) maintains his own web address at www.lehmantrustee.com.

As noted in the Client Asset Update in respect of the Omnibus Claim dated 1 November 2011, on 31 October 2011 LBIE filed an Objection to the Trustee’s revised Letter of Determination issued on 19 May 2011. On 13 January 2012, the LBI Trustee filed a Position Statement in support of his Letter of Determination.  On 24 February 2012, LBIE filed its response to the Trustee’s Position Statement, which can be viewed here.

At the heart of this dispute is the manner in which LBI’s books and records have been updated to reflect the settlement activity that took place after LBIE’s insolvency but prior to 19 September.  LBI and LBIE have reached materially different outcomes both in value and component parts of the underlying Omnibus Claim having reflected the actual settlement activity that took place and how it has impacted the position of underlying counterparties making up LBIE’s Omnibus claim.

LBIE maintains that only by respecting the contractual and historical course of dealings between the parties can the right determination be achieved. LBIE believes that the basis of preparation adopted by the Trustee fails to do this and is, therefore, deficient for the reasons as more fully set out in the Objection and LBIE’s Response to the Trustee’s Position Statement.

It is also LBIE’s view that the Omnibus Claim, properly determined, should have a strong correlation to what clients believe are their entitlements based upon their own records.  To alight on a different outcome will create considerable further complexity in the allocati on of distributions to LBIE’s underlying clients and will cause further delays to the ultimate resolution of this matter having particular regard to the material level of duplicate claims filed by LBIE counterparties against LBI.

LBIE is continuing to refine the information that it shares with clients and further updates will be issued in due course.  We would strongly urge counterparties who have not responded to the client statement communication to agree or otherwise raise queries in respect of their underlying positions do so as a matter of urgency so that this can be communicated on to LBI. On a note of caution, counterparties should recognize that the final determination of their entitlements once reached is not a confirmation that the underlying securities (or value in lieu) will be returned to the full amount, or part thereto, of their allowed claim.

Further information on the Omnibus Claim will be included in our seventh Progress Report and this will be available in mid April. Should you have any queries regarding this update, please contact LBIE's Communications and Counterparty Management team at generalqueries@lbia-eu.com. As always, the Joint Administrators will continue to communicate with you through this website on all matters relating to the administration of LBIE.