Client money & assets update - Securities Investor Protection Corporation ('SIPC') Customer Claims Process FAQs - 04/9/09

This update builds on previous information provided in respect of the SIPC claims process and published on the website as follows:

1. Client money and assets update - SIPA customer claims - 20/01/09
2. Trust Property FAQs - 25/03/2009 - Client Assets question 5
3. Client money & assets update - Scheme of Arrangement - MFA and AIMA Presentation 5 and 7 August 2009: Q&As; Section XIII LBI

FAQs

1. How does the SIPC customer claims process work? 
2. How are the LBI Trustee and the Joint Administrators resolving LBIE Customer claims? 
3. Did the LBIE Joint Administrators file a claim on my behalf? 
4. What documentation did the LBI Trustee require to resolve LBIE customer claims? 
5. What is the scope for amendment and provision of additional information for claims after 1 June 2009? 
6. When will LBIE customers receive confirmation of the extent to which positions remain held at LBI? 
7. Are LBIE customers eligible for individual SIPC advances? 
8. Is there anything else that LBIE clients can do directly with LBIE or the LBI Trustee to assist with the process? 
9. How much customer property will be available to satisfy customer net equity claims against LBI? 
10. When will the Trustee begin distributing property in respect of customer net equity claims? 
11. How will dividends and interest on customer property securities held by LBI be distributed by the SIPC Trustee? 

1. How does the SIPC customer claims process work?

For a general overview of the SIPC liquidation process, visit SIPC's website, http://www.sipc.org/.

In the United States, liquidation of a broker-dealer is accomplished pursuant to a very detailed statute, the Securities Investors Protection Act ('SIPA').  The statutory scheme calls for the appointment of a Trustee who conducts the liquidation and distribution of property under the auspices of a court proceeding.  Accordingly, the Trustee will have the Court before whom a SIPC matter is pending approve its determination of customer property, as well as the amount and timing of partial and final distributions, among many other steps of the process.

Upon commencement of a SIPC liquidation, the SIPC Trustee must publish notice and establish bar dates for the filing of claims in the liquidation case.

Customer property is defined in the SIPA as all securities and funds held by the U.S. broker-dealer.

In respect of Lehman Brothers Inc ('LBI') allowable customer claims are determined based on the net equity value of a customer's account as of 19 September 2008, which was the filing date of the LBI SIPC liquidation.  This is a dollar value claim based upon the closing prices of securities on this date. 

The bar date for customer claims in the LBI SIPC Liquidation was on 1 June 2009. The Trustee has stated that no claim of any kind will be allowed unless it was received by the Trustee on or before June 1, 2009. 

Under the SIPA statute, net equity claims will share on a pro rata basis in the total fund of customer property, as defined by SIPA, that is available for distribution, as determined by the bankruptcy court.  Typically, a SIPC trustee makes several partial distributions pro rata in respect of allowed net equity claims of customers.

The Trustee is continuing to review the customer claim forms received to determine allowability of each customer claim and the total net equity value of the allowable claims.

Further information regarding the claims process can be found at http://chap11.epiqsystems.com/clientdefault.aspx?pk=978bd245-11be-4d4b-83db-d6a3283b2962&l;=1  including the 1 July 2009 Statement Regarding Determination of Customer Claims and Distributions, and the Trustee's First Interim Report filed 29 May 2009.

2. How are the LBI Trustee and the Joint Administrators resolving LBIE Customer claims?

On 27 January 2009 LBIE entered into an agreement with the LBI Trustee and SIPC regarding the claims process. As envisaged in this agreement LBIE and the Trustee are currently negotiating a bilateral protocol to agree the detailed practical steps that will be taken to resolve LBIE Customer claims.

The Joint Administrators and their staff have developed a close working relationship with the Trustee and the professionals working for him.  There are teams working in parallel to reconcile positions shown on LBIE's records against those shown on LBI's records.  This is complicated by the differences in the dates on which the Administration commenced in the UK (15 September 2008) and the SIPC proceeding commenced in the United States (19 September 2008).

3. Did the LBIE Joint Administrators file a claim on my behalf?

The Joint Administrators filed an omnibus claim on behalf of all customers shown on LBIE's books and records that had securities, commodities, cash, or other property held with LBI on 12 September 2008. However as stated in the SIPC update dated 20 January 2009 (link provided above) LBIE has faced issues including missing or inaccessible records and IT data that complicate the compilation of claims.  Consequently, LBIE cannot guarantee that the omnibus claim that it filed on behalf of certain of its customers will identify every customer with securities, cash or other assets held by LBI through LBIE and neither the Administrators nor LBIE accept any liability arising out of any inaccuracies or deficiencies in the information provided.

Because of the fact that the insolvency proceedings for LBI and LBIE had different commencement dates, the Joint Administrators are endeavoring to determine what positions remained on LBI's books on behalf of LBIE's customers at 19 September 2008 and reconciling that to what positions were on 12 September 2008, the last date on which LBIE had accurate books and records.  This is made more complicated due to LBIE's limited visibility into LBI's systems after commencement of the liquidation proceedings.

4. What documentation did the LBI Trustee require to resolve LBIE customer claims?

The Joint Administrators timely filed an omnibus customer claim with the Trustee related to the securities positions and customer property which it understood was held by LBI on behalf of LBIE's customers.  The Administrators' staff is providing information to the SIPC Trustee in the LBI proceeding and are working with the Trustee's staff to reconcile information.  LBIE also timely filed claims on its own behalf for its proprietary positions. 

With respect to the claim on behalf of its customers, the Trustee also requires LBIE to provide a customer authorisation form for each customer.  If you haven't provided an authorisation form to the Joint Administrators' staff, please do so as quickly as possible.  The form and instructions are available on our website. Please click here for link.

Unless this authorisation is provided in respect of each customer whose claim is included within the omnibus customer claim by the Joint Administrators, the omnibus claim will be partially disallowed with respect to the portion that relates to such customer.

5. What is the scope for amendment and provision of additional information for claims after 1 June 2009?

The Joint Administrators' claims and agreements with the SIPC Trustee provide for amendment necessary to reflect the results of the reconciliation of records that the Joint Administrators' staff and the SIPC Trustee's staff are undertaking. 

The Trustee and the LBIE Joint Administrators are working diligently to resolve and, hopefully agree on the amount of the LBIE claims - the claim on behalf of LBIE customers and the LBIE proprietary claims.

6. When will LBIE customers receive confirmation of the extent to which positions remain held at LBI?

LBIE Customers should not expect to receive such confirmation. As noted above, the claim in a SIPC proceeding is a net equity claim measured as a dollar value.  See FAQ 1 above.  Again, there can be no assurance that any particular securities will be returned in the SIPC proceeding.

As mentioned, the Joint Administrators and the Trustee are working diligently to reconcile the positions reflected in respect of LBIE and its customers on the books of LBI and on those of LBIE.  This reconciliation is made more difficult by the need to bring the records into agreement as at 12 September 2008, and then bring them forward to the commencement date of the LBI SIPC proceeding of 19 September 2008.

At this stage, the Trustee has given no indication of the time frame in which the reconciliation process will be completed.

7. Are LBIE customers eligible for individual SIPC advances?

LBIE may be treated as a single customer claimant under a strict interpretation of SIPA, in which case there would not be individual SIPC advances to LBIE customers.  However, the Joint Administrators and the Trustee are negotiating to permit, where appropriate, separate SIPC advances to LBIE's customers.  In that case, LBIE customers could receive SIPC advances, up to the applicable limits under SIPA, as may be required to satisfy a customer claim to the extent the net equity value of such claim exceeds the customer's pro rata share of customer property available for distribution.

8. Is there anything else that LBIE clients can do directly with LBIE or the LBI Trustee to assist with the process?

Advising the Joint Administrators whether you received property from LBI after 12 September 2008 that relates to your holdings shown on LBIE's records would be most helpful.

The Joint Administrators' efforts will be expedited if you send in your authorisation form for the Joint Administrators' to claim on your behalf in the LBI SIPC proceeding.  If you haven't provided an authorisation form to the Joint Administrators' staff, please do so as quickly as possible.  The form and instructions are available on our website.  Please click here for link.

9. How much customer property will be available to satisfy customer net equity claims against LBI?

The Trustee has advised the Joint Administrators that he is in the process of making this determination. Once the Trustee makes this determination, he will make a filing the U.S. Court in which the LBI SIPC proceeding is pending. This will be publicly available through the Court docket and the EPIQ website referenced in FAQ 1 above.

10. When will the Trustee begin distributing property in respect of customer net equity claims?

Until the LBI customer property pool has been determined and the Trustee has determined the extent of allowed claims and contingent customer claims for which he may need reserves, no distribution is likely to be made.  Typically, a SIPC Trustee would make partial distributions.  Each partial distribution would be made pro rata in respect of allowed customer net equity claims after approval by the U.S. Court in which the SIPC proceeding is pending. Final distributions typically require a formal release from the customer of claims against the LBI Trustee.

11. How will dividends and interest on customer property securities held by LBI be distributed by the SIPC Trustee?

Dividends and interest on customer property securities will become part of the pool of customer property.  Whether these will go directly to the person beneficially owning the securities on 19 September 2008 or be part of the pro rata distribution has not been stated by the Trustee.  There appears to be no precedent addressed by the courts in the U.S.  This is a matter that the SIPC Trustee will address with the U.S. Court before which the LBI SIPC proceeding is pending.

Please direct any questions regarding the information contained in this update to clientpositionresponses@lbia-eu.com.