Lehman May 13

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

Merrill Lynch Capital Services Inc.

1. Merrill Lynch Can't Nix $21M Lehman Rate Swap Suit

   May 12, 2015 | Law360

   By Jonathan Randles
   
   
   A New York bankruptcy judge declined on Tuesday to nix a lawsuit that accuses Merrill Lynch Capital Services Inc. of cheating Lehman Brothers Special Financing Inc. out of $21 million through bogus interest rate swap transactions in 2008, opening the door for LBSF to start discovery in the year-old case.

Full Text of Stories Below

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

Merrill Lynch Capital Services Inc.

1. Merrill Lynch Can't Nix $21M Lehman Rate Swap Suit

   May 12, 2015 | Law360

   By Jonathan Randles

   A New York bankruptcy judge declined on Tuesday to nix a lawsuit that accuses Merrill Lynch Capital Services Inc. of cheating Lehman Brothers Special Financing Inc. out of $21 million through bogus interest rate swap transactions in 2008, opening the door for LBSF to start discovery in the year-old case.
   
   U.S. Bankruptcy Judge Shelley Chapman declined Merrill Lynch's motion to dismiss multiple claims asserted by LBSF in its lawsuit. It's the second time during the course of the litigation that the court has denied Merrill Lynch's attempts to derail the complaint, forcing the financial trader to continue defending against the suit.
   
   The crux of Merrill Lynch's argument was that LBSF needed and failed to include in the litigation as a defendant LCH Clearnet Ltd., the U.K. based clearing house that cleared the allegedly erroneous trades. Merrill Lynch claims that LCH is a so-called indispensable party to the litigation because LBSF seeks to recover money that actually flowed to the clearing house. LBSF's primary claim against Merrill Lynch is for unjust enrichment.
   
   Although she said it was a close call, Judge Chapman said that she believed Merrill Lynch's argument wasn't enough to win at this stage in the case. Judge Chapman mentioned throughout the hearing that at this stage in the litigation, she must accept as true LBSF's allegation of wrongdoing against Merrill Lynch.
   
   The court pointed to a key paragraph in the lawsuit: that LBSF alleges in June 2008 Merrill Lynch “unilaterally submitted data” that represented the bogus transactions to LCH and LBSF. Judge Chapman said at this point she did not believe LCH need be included in the lawsuit, and suggested that the argument Merrill Lynch pushed opens a can of legal worms the court was not ready to address.
   
   Specifically, the claim that the clearing house that was involved in the trades is an indispensable party could potentially implicate Goldman Sachs because the investment bank purchased Lehman's financial position. Judge Chapman stressed, however, that discussion of Goldman Sachs — which is not involved in the case — was purely hypothetical and meant only to test potential flaws in Merrill Lynch's argument.
   
   “I'm not convinced that LCH is a required party,” Judge Chapman said. The court denied the motion to dismiss without prejudice, meaning that after some discovery takes place, Merrill Lynch, armed with additional information, could raise the same legal argument again to try to beat LBSF's suit.
   
   Merrill Lynch's attorney William Roll III of Shearman & Sterling LLP defended the integrity of his client and the trades at issue in the case, saying that he was “annoyed of being accused of all this nefariousness.” Roll also accused LBSF of “sitting” on its claims against Merrill Lynch and suggested that statute of limitations arguments may be raised in the future.
   
   LBSF filed the lawsuit in June 2014, claiming that Merrill Lynch mistakenly identified two nonexistent interest rate swaps in June 2008, just a few months before Lehman Brothers Holdings Inc. collapsed, and sought to process them through an independent clearing house that LBSF used to its oversee its trade portfolio.
   
   The following month, Merrill Lynch made a $1.6 million payment to LBSF in connection with one of the transactions. It contacted LBSF directly later that day to say that the payment was made in error and asked that it be immediately returned, according to the complaint. LBSF complied with the request, it said.
   
   But Merrill Lynch did not resolve the matter with the clearing house, LBSF contends. The nonexistent transactions remained as live trades and resulted in $21 million in LBSF cash collateral being transferred to Merrill Lynch, the complaint says.
   
   LBSF claims that Merrill Lynch has refused to return the money despite acknowledging that the transactions were made in error...

   For full story:

   http://www.law360.com/articles/655107/merrill-lynch-can-t-nix-21m-lehman-rate-swap-suit
   

   Return to headline | Return to top

Full Text of Stories Below