Client Assets Update - Securities Investor Protection Corporation (‘SIPC’) Customer Omnibus Claim - 01/11/2011

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.

Since the last Client Asset Update in respect of the Omnibus Claim of 21 July 2011 and following the objection filed by LBIE in respect of the House Claim, the Joint Administrators have continued to work with the Trustee on the Omnibus Claim. A formal objection, supported by exhibit A and exhibit B, was filed yesterday to the Trustee’s revised determination issued on 17 May 2011.

A significant amount of progress has been made in conjunction with the Trustee to complete the substantive reconciliation exercise that was necessitated by the trading activity arising in the week immediately prior to the appointment of the Trustee on 19 September 2008.  The enormity of this task should not be underestimated.  However, several important matters have emerged which are noted below and form the basis of LBIE’s objection.

• A disagreement to the manner in which LBI’s books and records have been updated to reflect settlement activity that took place after LBIE’s insolvency but prior to 19 September 2008.
• The treatment in the books and records of certain items and deductions that have been made against the Omnibus Claim.
• The conditionality placed over certain material aspects which dramatically reduces the value in the determination and impedes overall resolution of the process.
• A dispute over time barring of elements of the Omnibus Claim.

LBIE remains fully committed to continue its discussions with LBI following the filing of the objection.  The total value of the objection is $15.1billion which includes approximately $4billion in overclaims (which are discussed in more detail in our recently issued Progress Report). 

Now that the reconciliation exercise has been concluded, LBIE is able to compute the cash and securities positions that it will be pursuing for its clients, on a client by client basis.  To this end LBIE will shortly be issuing estimated client statements specifically in respect of a client’s LBI positions.  The accompanying explanatory notes and guidance should be reviewed carefully.  Feedback and confirmations will be requested from Clients.

Clients should note that the estimated statements also indicate, on a stock line basis, the level of match between the total entitlements needed by LBIE to satisfy all of its clients and the amount included in LBI’s determination.  LBIE does not have any insight into LBI’s valuation approach on a stock line basis nor whether or not the underlying stock position remains in LBI custody.

Finally, readers are referred to the Joint Administrators’ recent update in respect of the Omnibus Claim and are reminded this is quite separate from the House Customer Claim.

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.