NEW YORK, Oct 19 (Reuters) - A U.S. bankruptcy judge
approved a request by ex-Lehman Brothers Holdings Inc directors, including former Chief Executive Officer Richard Fuld, to spend about $90 million in insurance money to settle
fraud accusations brought by investors.
The settlement, approved on Wednesday, would end a
three-year court battle accusing Lehman directors of painting a
misleadingly optimistic picture of the investment bank's health
in financial statements and securities offerings before its
fortunes fell and it filed for bankruptcy.
The settlement still must be approved by the federal judge
overseeing the fraud case.
At a court hearing in Manhattan, U.S. Bankruptcy Judge
James Peck overruled objections by other Lehman officers who
said the release of insurance funds might not leave enough
money to cover a settlement in their own investor lawsuits.
Lehman filed the largest-ever Chapter 11 bankruptcy in
2008. It is trying to get support on a payout plan in which
creditors would recover an average of about 20 cents on the
If creditors support the proposed $65 billion plan, the
bankruptcy court could confirm it as early as December and
Lehman could emerge from Chapter 11 soon afterward.
At Wednesday's hearing, Peck declined to rule on whether
Lehman properly classified about $2.4 billion in claims from
Deutsche Bank AG, saying the issue should be put off until the
confirmation stage of the bankruptcy exit plan.
Lehman had classified the German bank's claims in a
lower-priority group with less potential recovery. Deutsche
The decision creates uncertainty over whether Deutsche will
abide by an earlier agreement to support Lehman's exit plan.
Alan Kolod, a lawyer for Deutsche Bank, said the bank had
planned to support Lehman's bankruptcy exit plan pending
resolution of the classification issue.
Now that that issue will probably not be resolved by the
Nov. 4 deadline for creditors to vote on the plan, Kolod said
Deutsche must address internally whether it can support the
Peck said that question was "not my problem."
"Deutsche will either cast its vote in supporting the plan
because it's required to do so, or ... expose itself to
potential liability for not doing so," the judge said.
Peck said Deutsche Bank's objection in court amounted to a
"preemptive confirmation objection."
Deutsche's claims, which it purchased in 2010 from Lehman's
German unit, Lehman Brothers Bankhaus AG, are rooted in
participation agreements in real-estate loans.
The amounts of the claims were established in a 2009
settlement between Lehman and Bankhaus that guaranteed that the
claims would be treated as "general unsecured."
Lehman's plan instead classifies the claims as "affiliate,"
which means they would recover $100 million less than if they
were classified in other "general unsecured claims" classes.
But Harvey Miller, Lehman's lead lawyer, said affiliate
claims were a subset of general unsecured claims.
"The term 'general unsecured creditors' simply means a
nonpriority unsecured creditor," Miller told Peck. "It has no
Kolod said the term should not be so broadly defined and
that Deutsche claims are not affiliate claims because the
German bank is not an affiliate of Lehman.
The dispute grew heated at times, with Miller referring to
Kolod as "Mr. Deutsche Bank" after Kolod momentarily forgot
Kolod said Lehman was attempting to "rewrite and
reinterpret" the settlement agreement.
The case is In re Lehman Brothers Holdings Inc, U.S.
Bankruptcy Court, Southern District of New York, No. 08-13555.
(Reporting by Nick Brown)
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