Lehman Swiss Unit Loses Bid for $1.5 Billion Rascals Assets

Lehman Brothers Holdings Inc.’s former Swiss unit lost its bid to seize some of the $1.5 billion of securities frozen at the bank’s London operation after its failure.

The U.K. Court of Appeal rejected Switzerland-based Lehman Brothers Finance SA’s claim to the so-called Rascals assets, which were caught up in the bank’s internal-settlement system when it collapsed into administration in September 2008.

While the Swiss unit said it was the owner of securities acquired on its behalf, Judge Timothy Lloyd ruled the assets should remain with Lehman Brothers International Europe and its administrators PricewaterhouseCoopers LLP.

Lehman used internal repurchase agreements and stock loans to avoid regulatory charges on securities held by its European units, a system Lloyd described as “a mess” in his written judgment. Securities were purchased through the U.K unit and placed into the “Regulation and Administration of Safe Custody and Global Settlement” system, known as Rascals, before being sold to clients, according to the judgment.

Lehman filed bankruptcy in September 2008, plunging global financial markets into turmoil. The status of the Rascals assets and billions of dollars in other funds frozen at the time has been the subject of lawsuits among Lehman Brothers International Europe, now run by the administrators, the parent company in New York and other of the bank’s European units.


The Rascals system was designed to reduce regulatory costs and “exploit any loopholes without doing anything illegal or improper,” Gabriel Moss, a lawyer for the Swiss unit, said at an October hearing.

Lloyd left open the possibly that Lehman Brothers Finance SA could claim Rascals assets manually processed through stock loans after July 2008. They belonged to the Swiss unit “at the moment of the group’s collapse,” unless Lehman Brothers International Europe can show it paid collateral on the securities.

“Those possibilities need to be kept open, so as to be capable of resolution by a judge if the parties cannot agree the position,” Lloyd said.

PwC is “pleased with the outcome of the appeal” and is reviewing the judgment, Stephanie Howel, a PwC spokeswoman in London, said in an e-mailed statement.

Lehman Brothers International Europe won the first round of the Rascals litigation in November 2010, when a London court ruled it could keep the assets.

The Swiss unit can still appeal against today’s decision at the U.K. Supreme Court.

The case is: In the Matter of Lehman Brothers International (Europe)(In Administration), case no. 7942/2008, High Court of Justice, Chancery Division (London).

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