Bankrupt Lehman Brothers Holdings Inc. (LEHMQ) sued Citigroup Inc. (C)’s Citibank for $2.5 billion by over claims the bank “wrongfully” withheld the money after it was transferred by Lehman in the months before its 2008 bankruptcy.
Lehman also is seeking “hundreds of millions” owed by Citibank, and wants to reduce or deny $2 billion of claims Citibank filed against Lehman, according to a court filing yesterday.
Lehman, which is pursuing a liquidation plan that would pay creditors less than 18 cents on the dollar, has said that $2 billion of the cash it has gathered so far to pay creditors was pledged to Citigroup. In addition to trying to free up cash, it is seeking to cut bank claims on its assets to increase the amount available for other creditors.
“This action is an unjustified attempt by the Lehman estates to renege on their obligations to Citi, and claw back assets to which they have no right,” said Danielle Romero- Apsilos, a spokeswoman for New York-based Citigroup. The bank, which “went out of its way to try to help Lehman prior to its bankruptcy filing,” will fight the lawsuit, she said.
According to Lehman, Citibank has said it’s entitled to $2 billion of the defunct firm’s cash to secure its claims on Lehman, which would otherwise be unsecured.
The so-called setoff “is in violation of the bankruptcy code,” Lehman said in the lawsuit.
Romero-Apsilos said the bank took the cash to protect itself and its shareholders from loss. Lehman filed the biggest U.S. bankruptcy in history with debt of $613 billion more than three years ago.
Separately, Citigroup is fighting a $1.3 billion demand by Lehman’s defunct brokerage and has settled its differences with Lehman’s European affiliate.
To contact the reporter on this story: Linda Sandler in New York at email@example.com;