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Lehman Brokerage Payout Awaits Approval of Affiliate Pact

Defunct brokerage Lehman Brothers Inc., which hasn’t paid hedge funds after four years in liquidation, has brought institutional customer claims “to the brink of a 100 percent distribution” that must await court approval of settlements struck with affiliates, the trustee said.

Trustee James Giddens, who is facing payment demands by New York hedge fund Elliott Management Corp., controls $13.5 billion in cash and $12.5 billion in securities, he said in a report filed today in bankruptcy court in Manhattan. The brokerage has spent $812.5 million liquidating since its parent filed the biggest bankruptcy in U.S. history in September 2008, including fees to lawyers and consultants of more than $704 million.

Giddens earlier this month agreed to settle disputed claims with Lehman Brothers International Europe, after striking an accord with a Swiss affiliate. He is working to resolve differences with the parent company, Lehman Brothers Holdings Inc., he said in the report.

The brokerage and its parent have been disputing for years the claims filed against them, with some of the largest coming from former affiliates. The Lehman parent made its first payment of $22.5 billion to creditors last April, about 3 1/2 years after filing the biggest U.S. bankruptcy in history on Sept. 15, 2008, and a second payment this month of $10.2 billion. The brokerage collapsed four days after the parent and is being separately liquidated by Giddens.

Giddens transferred most of the brokerage’s retail accounts to Barclays Plc in 2008.

The Lehman brokerage liquidation is Securities Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The parent’s case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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