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Lehman Brothers Kuly 8
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Lehman Settles Derivatives Dispute Over Putnam Swaps
Jul 7, 2015 | The Wall Street Journal
By Joseph Checkler
Lehman Brothers Holdings Inc. settled a multimillion-dollar derivatives dispute involving mutual-fund giant Putnam Investments, ending litigation over a series of swap agreements. In a Monday filing with U.S. Bankruptcy Court in Manhattan, Lehman said a unit of U.S. Bancorp, the trustee for the Putnam swaps, would pay the failed investment... -
Lehman Case Shows Blurred Lines on Repos
Jul 7, 2015 | The New York Times - DealBook
By Stephen J. Lubben
In a little-noticed recent opinion, a distressed debt trader came awfully close to undermining the basis for the repo safe harbors. It did so mostly by making a common sense argument. But the United States Court of Appeals for the Second Circuit blocked that possibility by noting that distressed debt trader was essentially trying to have it both... -
Lehman Taking $67M Tax Credit Fight To 2nd Circ.
Jul 7, 2015 | Law360
By Lance Duroni
Lehman Brothers Holdings Inc. said Monday it is appealing to the Second Circuit a decision denying its bankruptcy administrators $67 million in foreign tax credits, challenging a federal judge’s reading of a bilateral tax treaty between the U.S. and the U.K. The long-bankrupt investment bank seeks to reverse U.S. District Judge Richard... -
Richard Fuld, Last Chairman of Lehman Brothers, to Auction Off Sun Valley, Idaho, Estate
Jul 7, 2015 | The Wall Street Journal
By Stefanos Chen
Richard Fuld, the last chairman and CEO of Lehman Brothers, will auction off his 71.3-acre property in Sun Valley, Idaho, according to the auction company. It was last offered for sale as an off-market listing for $59.5 million. Laura Brady, the president of the auction company, Concierge Auctions, said the auction will be held on Aug. 19. -
Former Lehman Brothers CEO Dick Fuld Has Put His Massive Sun Valley Compound Up For Auction
Jul 8, 2015 | Business Insider Australia
By Julia La Roche
Former Lehman Brothers CEO Dick Fuld is putting his gorgeous Sun Valley, Idaho compound up for auction, the Wall Street Journal reported. The 71.3-acre Big Wood River Estate was originally offered for $US59.5 million. Concierge Auctions estimates that the property could fetch anywhere from $US30 to $US50 million when... -
Dick Fuld’s Sun Valley Ranch Up For Auction
Jul 7, 2015 | CNBC
By Robert Frank
Former Lehman CEO Dick Fuld is selling his 71-acre Idaho ranch, in what is likely to become the most expensive residential property ever sold at auction, according to sources familiar with the transaction. Concierge Auctions has announced it will sell the Sun Valley ranch on Aug. 19 to the highest bidder. -
Banks Promise No Lehman Moment By Relying On Unfinished Derivative Rule Change
Jul 8, 2015 | Forbes
By Antoine Gara
...JPMorgan Chase, Goldman Sachs Group and Morgan Stanley all said that if they were to default in a new crisis scenario, they don’t foresee another Lehman Brothers moment — a messy bankruptcy that freezes trillions of dollars in trades and anchors the country’s largest lenders and asset managers to a single sinking firm. But, much of that...
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
Putnam Investments
Doral Financial - Puerto Rico
Foreign Tax Credits
Dick Fuld - Sun Valley
Comment - Derivative Market
Full Text of Stories Below
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Lehman Settles Derivatives Dispute Over Putnam Swaps
Jul 7, 2015 | The Wall Street Journal
By Joseph Checkler
Lehman Brothers Holdings Inc. settled a multimillion-dollar derivatives dispute involving mutual-fund giant Putnam Investments, ending litigation over a series of swap agreements.
In a Monday filing with U.S. Bankruptcy Court in Manhattan, Lehman said a unit of U.S. Bancorp, the trustee for the Putnam swaps, would pay the failed investment bank an undisclosed sum to settle the matter. The dispute was over a series of swap agreements that defaulted when Lehman collapsed into bankruptcy nearly seven years ago.
Lehman said when the trustee for the swaps terminated them, it paid Putnam investors more than $20 million but didn’t pay what Lehman calls a “very significant” early termination payment to the collapsed bank. Lehman contends Putnam investors got nearly $16 million too much.
“Although the plan administrator believes that [Lehman’s] claims against the Putnam issuer are valid and meritorious, the plan administrator has determined in its informed business judgment that the terms of the settlement agreement are in the best interest of [Lehman’s] estate,” Lehman said in the filing. Lehman cited the avoidance of a costly and lengthy legal battle as a reason to end the dispute now.
The two sides had a mediation session over the dispute earlier this year, Lehman said in the filing. Lehman will ask a judge to approve the compromise at an Aug. 4 hearing.
The dispute was one of hundreds Lehman had over derivatives contracts in the aftermath of its bankruptcy filing. The swaps involved were part of a series of suits Lehman filed in September 2010 against the big banks and other investors involved in the swap agreements. Many of the defendants in those suits have already settled with Lehman.
Derivatives counterparties have long argued that Lehman’s bankruptcy constituted a default under their swaps agreements. But in 2010, Judge James Peck, the judge then overseeing Lehman’s chapter 11 case, said those clauses were so-called ipso facto provisions that deprived Lehman of the benefit of its in-the-money position under the swaps, which is the case with the Putnam agreements. Provisions terminating a contract solely because of a bankruptcy filing are known as ipso facto clauses and are generally prohibited under U.S. bankruptcy law...
For full story:
http://www.wsj.com/articles/lehman-settles-derivatives-dispute-over-putnam-swaps-1436300738
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Lehman Case Shows Blurred Lines on Repos
Jul 7, 2015 | The New York Times - DealBook
By Stephen J. Lubben
In a little-noticed recent opinion, a distressed debt trader came awfully close to undermining the basis for the repo safe harbors. It did so mostly by making a common sense argument.
But the United States Court of Appeals for the Second Circuit blocked that possibility by noting that distressed debt trader was essentially trying to have it both ways.
The case arose out of the Lehman Brothers bankruptcy, or more precisely, the liquidation that is dealing with Lehman’s brokerage subsidiary.
In 2000 and 2001, Doral Financial of Puerto Rico entered into a repo agreement with Lehman whereby Doral could “sell” various securities to Lehman in exchange for cash. Doral promised to buy back those securities at a set point in the future, for slightly more than the cash it had received from Lehman.
If this all looks vaguely like a secured loan, it should. That’s what most repo transaction are.
Nonetheless, under both the bankruptcy code and the Securities Investor Protection Act, repo transactions are not treated like ordinary secured loans. Instead, they are exempt from the automatic stay and other features of normal insolvency law. This is just like the treatment of swaps and settlement payments under the much- and long-maligned — by academics at least — safe harbors.
In the case before the circuit court, Doral wanted to retrieve securities that it had given to Lehman when the Wall Street firm failed. But Doral ultimately sold whatever claims it had against the Lehman estate to distressed debt investors.The investors in turn wanted to argue that Doral had been a customer of Lehman’s brokerage subsidiary. Being a customer would have entitled the investors to preferred treatment over other unsecured creditors in the SIPA liquidation proceedings.
It seems that the securities that Doral had given Lehman in exchange for cash had gone up in value. In other words, under the repo agreement, the distressed debt investors had a contractual right to buy those securities back from Lehman at a fixed cost that was now lower than the value of the securities.
Or more directly, as the holder of Doral’s claims, the investors could claim damages for Lehman’s breach of contract in failing to resell the securities. The measure of those damages would be the difference between the current market value of the securities and the contractual buyback price.
But that breach of contract claim would be of little value if it were a mere unsecured claim in the Lehman brokerage SIPA proceeding. Much better to be a priority customer claim.
The argument for being a customer was essentially that the sale of the securities to Lehman was a sham transaction, with all the economic risk of the securities remaining with Doral.
In short, the investors argued this was not really a sale, but something more like a “bailment,” or the delivery of something without a transfer of ownership. Basically Doral pawned some securities at the Lehman Brothers pawnshop.
If the distressed debt investors had succeeded in this argument, it would have raised serious questions about why repo transactions are not treated like secured loans...
For full story:
http://www.nytimes.com/2015/07/08/business/dealbook/lehman-case-shows-blurred-lines-on-repos.html
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Lehman Taking $67M Tax Credit Fight To 2nd Circ.
Jul 7, 2015 | Law360
By Lance Duroni
Lehman Brothers Holdings Inc. said Monday it is appealing to the Second Circuit a decision denying its bankruptcy administrators $67 million in foreign tax credits, challenging a federal judge’s reading of a bilateral tax treaty between the U.S. and the U.K.
The long-bankrupt investment bank seeks to reverse U.S. District Judge Richard M. Berman’s May ruling that it cannot offset U.S. tax payments on its 1999 and 2000 returns with levies imposed by U.K. authorities on substitute dividend payments, along with all other adverse judgments in the case, according to a notice filed in New York federal court.
In refusing to allow Lehman to claim the tax credits, Judge Berman adopted the IRS' reading of the U.S.-U.K. Double Tax Treaty, holding that stock loan transaction payments from Lehman’s U.K. wing were dividends for U.S. tax purposes.
An attorney for Lehman declined comment on the appeal on Tuesday.
The substitute dividend payments that came from onetime U.K. trading subsidiary Lehman Brothers International (Europe) PLC are not normally treated as dividends under U.S. tax law. The dispute hinged on whether the U.S.-U.K. Double Tax Treaty overrides and renders those payments dividends that can’t be claimed as credits.
Lehman had urged the court to import the narrower U.S. definition of "dividend" into the treaty, a position which the IRS called inconsistent with its unambiguous language and which Judge Berman rejected.
“Lehman’s interpretation of the several treaty provisions runs contrary to an established canon of construction,” the judge wrote. “Lehman also inconsistently ‘cherry-picks’ among various provisions of the treaty to achieve a desired (tax) result.”
The decision backed up the government’s decision to disallow the claimed credits under Section 901(k) of the Internal Revenue Code, which precludes shareholders with “an obligation to make a related payment with respect to the stock” from using dividends to reduce tax bills. Lehman contended that the provision did not apply to the payments at issue.
Judge Berman held a one-day trial in October at which Lehman and the IRS offered dueling testimony from experts on whether the treaty trumped the U.S. dividend definition. Government witness Patricia Brown testified that tax treaties “invariably” contain deviations from domestic tax law that are nonetheless ratified by the Senate.
Once the world's fourth-biggest investment bank, Lehman became the poster child for the financial crisis after filing the largest Chapter 11 case in history in September 2008, listing assets of $639 billion and debts of $613 billion. A judge confirmed its bankruptcy plan in December 2011, but Lehman remains mired in litigation and isn’t expected to wind down its affairs for several more years...For full story:
http://www.law360.com/articles/676401/lehman-taking-67m-tax-credit-fight-to-2nd-circ-
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Richard Fuld, Last Chairman of Lehman Brothers, to Auction Off Sun Valley, Idaho, Estate
Jul 7, 2015 | The Wall Street Journal
By Stefanos Chen
Richard Fuld, the last chairman and CEO of Lehman Brothers, will auction off his 71.3-acre property in Sun Valley, Idaho, according to the auction company. It was last offered for sale as an off-market listing for $59.5 million.
Laura Brady, the president of the auction company, Concierge Auctions, said the auction will be held on Aug. 19. The property, called Big Wood River Estate, will be auctioned without a reserve and is expected to fetch $30 million to $50 million.
Ms. Brady said Mr. Fuld, who owns the property through a trust, is selling because he isn’t using it as often as he used to...
For full story:
http://www.wsj.com/articles/lehmans-fuld-to-auction-off-sun-valley-idaho-estate-1436273760
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Former Lehman Brothers CEO Dick Fuld Has Put His Massive Sun Valley Compound Up For Auction
Jul 8, 2015 | Business Insider Australia
By Julia La Roche
Former Lehman Brothers CEO Dick Fuld is putting his gorgeous Sun Valley, Idaho compound up for auction, the Wall Street Journal reported.
The 71.3-acre Big Wood River Estate was originally offered for $US59.5 million. Concierge Auctions estimates that the property could fetch anywhere from $US30 to $US50 million when it hits the auction block on August 19th. It’s listed “without reserve” meaning it will go the highest bidder.
The listing says the property is owned by Fuld through a trust.
Before its demise in 2008, Lehman Brothers was the fourth largest Wall Street bank. Fuld had been the CEO since 1994. Since the bankruptcy, Fuld has kept a relatively low profile. He recently reemerged at a small-cap conference this spring.
Now, let’s take a tour of his compound...
For full story:
http://www.businessinsider.com.au/dick-fuld-selling-sun-valley-home-2015-7#the-sun-valley-estate-sits-on-713-acres-offering-seclusion-and-privacy-1
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Dick Fuld’s Sun Valley Ranch Up For Auction
Jul 7, 2015 | CNBC
By Robert Frank
Former Lehman CEO Dick Fuld is selling his 71-acre Idaho ranch, in what is likely to become the most expensive residential property ever sold at auction, according to sources familiar with the transaction.
Concierge Auctions has announced it will sell the Sun Valley ranch on Aug. 19 to the highest bidder. Concierge estimates the property will fetch $30 million to $50 million—but it could sell for even more. It previously was quietly listed in an unofficial "whisper listing" for $59.5 million, but failed to attract a buyer, these sources said.
The property is just minutes from the famed Sun Valley Resort, and is bordered on one side by the Big Wood River—known for its fly fishing—and Bald Mountain on the other side.
Along with a sprawling, luxurious main residence with service quarters, the property has a guest house and gate house.
Fuld didn't respond to requests for comment. Laura Brady, president of Concierge, declined to comment on the identity of the seller, but she said the seller is selling "because they're just not spending as much time there anymore."...
For full story:
http://www.cnbc.com/id/102814665
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Banks Promise No Lehman Moment By Relying On Unfinished Derivative Rule Change
Jul 8, 2015 | Forbes
By Antoine Gara
“Relax! This time, if we fail, we won’t drag the rest of capitalism down with us.” That seems to be the message from America’s financial powerhouses after a read through of their updated living wills, delivered to the Federal Reserve and FDIC this July.
JPMorgan Chase, Goldman Sachs Group and Morgan Stanley all said that if they were to default in a new crisis scenario, they don’t foresee another Lehman Brothers moment — a messy bankruptcy that freezes trillions of dollars in trades and anchors the country’s largest lenders and asset managers to a single sinking firm. But, much of that assurance rests on an arcane and yet to be finalized change to the way trading occurs in the $630 trillion market for over-the-counter derivatives.
Those swap trades, as financial observers now know, count for much of the activity on Wall Street and they weave dangerous webs between large banks, where the failure of one firm can lead to a domino effect. In the case of Lehman Brothers, the firm’s bankruptcy immediately triggered cross defaults among its various OTC derivatives and the immediate termination or freeze on an estimated $1 trillion in trades it made with peer institutions, throwing Wall Street into complete disorder.
It was as if a light switch was flipped. Trading books immediately became un-hedged, cash didn’t come in the door as expected to meet contractual outgoing payments, margin payments were triggered, and lifeblood collateral accounts were frozen in bankruptcy proceedings. The mess extended to large hedge funds, which were forced to liquidate assets like stocks, bonds and commodities to stay afloat.
When the dust settled from the crisis, one of the first orders of business for U.S. regulators was to reform OTC derivative markets so that no Lehman moment ever occurred again. The first breakthrough was to begin clearing new OTC swap trades on centralized clearinghouses. That would mitigate owning the wrong side of a frozen or terminated Lehman swap, or having collateral stuck in their coffers.
...In 2014, the Fed and FDIC effectively rejected large banks’ living wills, citing significant shortcomings such the continued systematic risks posed by OTC swap books, and the prospect that a parent company bankruptcy would trigger a Lehman-like termination on those trades...
...Instead of disorderly terminations and defaults, firms now have the flexibility to unwind via the sale of swap portfolios, negotiated and non-disruptive terminations, or novate trades to healthier counterparts — something that took months, if not years, for Lehman administrator Alvarez & Marsal to complete. The strategy would also be pliable across different bankruptcy regimes, another issue that emerged with Lehman Brothers subsidiaries in Europe...
For full story:
http://www.forbes.com/sites/antoinegara/2015/07/07/banks-promise-no-lehman-moment-by-relying-on-unfinished-derivative-rule-change/
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
Putnam Investments
Doral Financial - Puerto Rico
Foreign Tax Credits
Dick Fuld - Sun Valley
Comment - Derivative Market
Full Text of Stories Below
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