Barclays faces trial on Lehman claim of $11-bn windfall

NEW YORK: Barclays faces a trial over claims by Lehman Brothers Holdings that it should pay as much as $11 billion to the bankrupt firm for the “windfall” the bank received when it purchased Lehman’s brokerage.

The fight beginning Monday in US Bankruptcy Court in Manhattan pits the UK’s second-biggest bank, which more than doubled its profit last year, against Lehman, which wants money to pay off creditors and brokerage customers.

Lehman said Barclays failed to tell the court how much money it made on the deal, which was sealed in the wake of Lehman’s 2008 collapse, the biggest bankruptcy in US history. Barclays, which reported a $4 billion gain on the brokerage that year, said Lehman’s advisers knew it would make a profit.

“The standard rap is that bankruptcy courts favor the debtors,” said Lynn LoPucki , a law professor at the University of California, Los Angeles. “The court’s going to hear Barclays out, but it won’t be with an entirely open mind.”

US Bankruptcy Judge James Peck is presiding over three lawsuits against Barclays, including one by the Lehman brokerage’s trustee, James Giddens, and one by creditors.

According to the court agenda, Barclays is scheduled to begin the hearing by seeking documents from its adversaries the bank claims it needs to assess their understanding of the brokerage sale.

Lehman’s lawyers and the trustee are scheduled to call witnesses this week, including former executives and directors of the defunct investment bank. Former Lehman President Herbert “Bart” McDade, lawyers from its lead bankruptcy firm, Weil Gotshal & Manges LLP, and Barclays executives are set to be called to the stand, according to lawyers in the case who declined to be identified because the witness list isn’t public.

Opening arguments in the bankruptcy court trial were made April 9, after Peck rejected Barclays’s request to dismiss the case. The bank had argued in court papers that it wasn’t lawful to reopen the sale contract. “I don’t think this can be decided just on the basis of the papers,” Peck said at the time.