LBIE Administration Update - High Court Application Regarding Ownership of Certain Securities in LBIE's House Depots - 19/11/2010

On 16 July 2009 the Joint Administrators applied to the High Court for directions concerning the ownership of securities and associated cash worth in excess of US$1.5bn held in LBIE's house depots.  Certain of LBIE's affiliates asserted ownership of those assets: Lehman Brothers Finance S.A., Lehman Brothers Commercial Corporation Asia Limited, Lehman Brothers Asia Holdings Limited, Lehman Brothers Inc. and Lehman Brothers Special Financing Inc. (the "Affiliates").

The securities in question had been acquired by LBIE prior to its administration for the account of the Affiliates, and had been subjected to an intra-group repo/stock loan process known as "RASCALS": the "Regulation and Administration of Safe Custody And globalL Settlement".

The trial of the RASCALS Application took place before The Honourable Mr Justice Briggs in October 2010, and lasted three weeks. On 19 November 2010 the judgment in the case was handed down. A copy of the judgment can be accessed here.

The Court found that securities remaining in LBIE depots which were subject to standard pattern RASCALS processing are owned (as between LBIE and the Affiliates) by LBIE, and not by the Affiliates. While the Affiliates had acquired a beneficial interest in such securities upon their purchase from street counterparties, the standard RASCALS process had the effect of transferring that beneficial ownership in the securities to LBIE via the RASCALS securities repurchase agreements and stock loans. LBIE retained beneficial ownership of the securities thereafter (save in the event of disposals to third parties).

A copy of the Order issued by the High Court will be posted on this website when it has been sealed.  It is not currently known whether any party to the Application will pursue an appeal against the judgment nor (if so) the basis or likely timing of such an appeal.

Should you have any questions regarding this update, please contact the Communications and Counterparty Management Team at generalqueries@lbia-eu.com.