Lehman Nov 24

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FirstBank

1. FirstBank's $62M Claim Against Lehman Brothers Nixed

   Nov 23, 2015 | Law360

   By Jonathan Randles
   
   
   A New York bankruptcy judge on Monday wiped out FirstBank Puerto Rico's $61.5 million claim against Lehman Brothers Inc. over a soured interest rate swap agreement, ruling that the bank doesn't qualify as a customer under a federal law designed to protect securities investors.

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Client Attorney Privileged/Attorney Work Product/At Request of Counsel

FirstBank

1. FirstBank's $62M Claim Against Lehman Brothers Nixed

   Nov 23, 2015 | Law360

   By Jonathan Randles

   A New York bankruptcy judge on Monday wiped out FirstBank Puerto Rico's $61.5 million claim against Lehman Brothers Inc. over a soured interest rate swap agreement, ruling that the bank doesn't qualify as a customer under a federal law designed to protect securities investors.
   
   U.S. Bankruptcy Judge Shelly Chapman granted the LBI trustee's motion to expunge FirstBank's claim, ruling that the bank doesn't qualify as the failed broker-dealer's customer under the Securities Investor Protection Act. FirstBank's claim is tied to government securities that the bank says it entrusted to LBI before Lehman imploded in 2008.
   
   In her decision, Judge Chapman shifted blame away from LBI and said that FirstBank's predicament was caused by the bank's own doing. FirstBank didn't file a claim against the entity that pledged the securities, Lehman Brothers Special Financing Inc. or the guarantor, Lehman Brothers Holdings Inc., the ruling said.
   
   Judge Chapman said that FirstBank's arguments that it is entitled to customer status would rewrite SIPA standards and contradict Second Circuit precedent.
   
   “FirstBank was not a customer of LBI. The loss FirstBank incurred was not due to the failure of its broker-dealer, but by its own failure to submit a claim against its counterparty or credit support provider," Judge Chapman said.
   
   The ruling is the latest setback for FirstBank, which previously was unable to recover from Barclays Capital Inc., which purchased LBI's assets after Lehman's collapse. U.S. Bankruptcy Judge James Peck, who retired from the bench in 2014, previously ruled that the bankruptcy sales order shielded Barclays from FirstBank's claim.
   
   In Monday's ruling, Judge Chapman said that the previous litigation against Barclays also blocks FirstBank's claim under the doctrine of collateral estoppel, which prevents parties from litigating the same issues more than once.
   
   “The ruling supports the trustee’s position and protects assets in the LBI estate, which is good news for creditors as the wind-down continues,” a representative for LBI trustee James Giddens said in an email.
   
   The facts of the dispute stretch back to 1999, when FirstBank entered into an interest rate swap agreement with Lehman Brothers Specialty Finance and posted $220 million in collateral to secure its potential obligations.
   
   The bank agreed that LBSF could use the posted collateral as it saw fit, and it later sold the securities to LBI to hold through a master repurchase agreement. Because of Lehman’s 2008 implosion, LBI hasn’t released any of the securities back to LBSF, and the two released each other from further obligations under the master repurchase agreement through a 2013 settlement.
   
   Giddens is insisting that FirstBank filed its claim against the wrong entity because it never entered into any contractual agreement, customer or otherwise, with LBI. The bank has countered that its delivery of the collateral to LBSF gives it title, even if the collateral was later transferred elsewhere.
   
   The claims represent the amount that FirstBank could have withdrawn before LBI began liquidating.
   
   K&L Gates LLP attorney Robert Honeywell, who represented FirstBank, said that his client is disappointed in the ruling and is currently exploring its options.
   
   "It thinks the court failed to recognize the difference between LBI in its role as a broker and securities intermediary, acting as a triparty collateral custodian, and LBI in its proprietary capacity, when it later acquired the collateral in repos with its own subsidiary, LBSF," Honeywell said in an email. "The SIPA statute and SEC and Treasury regulations protect anyone who entrusts government securities collateral to a broker acting as a custodian. Internal Lehman repos didn’t unilaterally strip customers of that protection."...

   For full story: http://www.law360.com/articles/730494/firstbank-s-62m-claim-against-lehman-brothers-nixed
   

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