November 25, 2008
As widely reported, on Monday, September 15, 2008, Lehman Brothers Holdings Inc. ("Lehman Holdings") filed a voluntary petition under chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), with the United States Bankruptcy Court for the Southern District of New York. On Friday, September 19, 2008, the Securities Investor Protection Corporation ("SIPC") applied for an Order Commencing Liquidation of Lehman Brothers Inc. ("LBI"), which was entered by the United States District Court for the Southern District of New York. Judge Gerard E. Lynch promptly referred the case to the Bankruptcy Court presiding over the chapter 11 case of Lehman Holdings, which ordered the liquidation of LBI pursuant to the Securities Investor Protection Act of 1970, as amended, 15 U.S.C. § 78aaa et seq. ("SIPA"). James W. Giddens (the "Trustee"), was appointed as Trustee, to oversee the liquidation of the business of LBI.
The SIPA liquidation of LBI is the largest securities broker-dealer liquidation ever attempted. At this point, the Trustee has effected the transfer of over 135,000 accounts that were formerly held with LBI to Barclays Capital and Neuberger Berman, and the process of transferring these accounts is still ongoing. The Trustee intends to return to customers all fully-paid-for identifiable securities within his jurisdiction or control wherever possible and to treat customer claims in accordance with SIPA and to treat non-customer creditor claims in accordance with the Bankruptcy Code. The Bankruptcy Court has now approved the procedures for filing claims against LBI in the SIPA liquidation proceeding, and for the adjudication of claims by the Trustee. The procedures will be different for customers and for non-customer creditors.
Types of Claims
There are two types of claims in this proceeding: customer claims, and non-customer creditor claims. Customer claims are those claims of those creditors who were customers of LBI, and hold a claim on account of cash or securities held by LBI in the ordinary course of its business as a broker-dealer. These customer claims will be subject to the customer protections set out in SIPA, and will be satisfied out of the cash and securities that LBI held as customer property, and may have access to a reserve fund maintained by SIPC. Non-customer creditor claims will be treated in accordance with the Bankruptcy Code, and will not have access to the SIPC reserve. Instead, the Trustee will make a pro rata distribution of the assets of the LBI estate, based on whether the claim was secured or not, and the type of claim at issue.
If you were a customer of LBI, with an open account within the past year, or a creditor of LBI, listed on the books and records, you should receive a package of information that includes a Notice of Commencement of Liquidation Proceedings, which will set out the deadline for submitting claims, the customer claim form and the non-customer creditor claim form, each with an explanatory letter, and the form of Notice of Trustee’s Determination of Claim.
This package will be mailed on December 1, 2008, and the bar date for customer claims under SIPA is January 30, 2009. The Trustee must have received the claim form by that date for the customer to be entitled to the maximum protection under SIPA. If the Trustee does not receive the customer claim before that date, the claim need not be paid or satisfied out of the customer property and to the extent that it is satisfied by monies advanced by SIPC, it shall be satisfied in cash or securities as the Trustee determines is most economical to the estate. The bar date for non-customer creditor claims to be received by the Trustee is June 1, 2009. All claim forms in this proceeding must be filed with the Trustee through the claims agent, Epiq Bankruptcy Solutions, LLC. 
The Notice will also be published on December 1, 2008 in all editions of the The New York Times, The Wall Street Journal, and The Financial Times. All the documents in the package, including the claim forms are also on SIPC’s website, http://www.sipc.org under Proceedings/Liquidation and on the Trustee’s website, www.lehmantrustee.com.
The Trustee and his professionals will review each claim that is filed in accordance with SIPA and the Bankruptcy Code. If the claim is allowed as a customer claim, it will be settled by (i) transferring accounts of the customer in whole or in part to one of more SIPC member firms, (ii) delivering "customer name securities," defined as those non-negotiable securities held in the name of the customer and not in street name, or (iii) satisfying the customer’s "net equity" claim by distributing on a ratable basis cash and securities of the same class or series of issue on hand as the customer held. The Trustee has access to a SIPC reserve to make up for any shortfall, which provides up to $500,000 per account, of which $100,000 may be used to reimburse for lost cash balances. If there is a shortfall, the remainder of the claim will be treated as an unsecured non-customer creditor claim against the estate of LBI. A customer claim may be disallowed completely, disallowed in party or disallowed (in whole or in part) as a customer claim but allowed as a secured or unsecured non-customer creditor claim. Non-customer creditor claims may also be allowed or disallowed in whole or part. If allowed, they will be settled by a pro-rata distribution of the assets of the LBI estate.
If the claim is disallowed (in whole or in part), the Trustee will notify the claimant that the Trustee has determined that the claim has been disallowed in whole or in part or otherwise not approved for satisfaction as filed., using a form similar to the Notice of Determination of Claim. If the claimant wishes to contest the determination, the claimant has thirty (30 days) to file a request for a hearing with the Bankruptcy Court. The Trustee has the authority to compromise and settle any claims for customer protection.
Customers and Creditors Meeting
There will be a meeting of customers and other creditors on December 17, 2008 at 2 p.m. at the United States Bankruptcy Court, Alexander Hamilton Custom House, Lower Level Auditorium, One Bowling Green, New York, New York 10004. This meeting will provide information on the claims process and on the progress of the SIPA liquidation generally. Attendance at the meeting of customers and creditors is not required either to preserve or file a claim.
Please note that many of the issues identified above are complex and that we have only provided a general overview. If you have specific questions or concerns, that will require further investigation and discussions both from a business and a legal perspective, please contact Gibson, Dunn & Crutcher LLP. We will work closely with you to develop appropriate strategies for managing the claims process and any related litigation and will prepare any necessary filing documents.
 Other Lehman entities have filed for bankruptcy protection subsequently or under other jurisdictions. LB 745 LLC, filed under chapter 11 on September 16, 2008. Lehman Brothers Commodity Services, Lehman Brothers Finance SA, Lehman Brothers Special Financing Inc., Lehman Brothers OTC Derivatives Inc., Lehman Brothers Derivative Products Inc., Lehman Commercial Paper Inc., Lehman Brothers Commercial Corp., and Lehman Brothers Financial Products Inc. filed under chapter 11 on October 3, 2008. In addition, the following Lehman entities have also filed under chapter 11: PAMI Statler Arms LLC, Fundo de Investimento Multimercado Credito Privado, Lehman Scottish Finance, L.P., CES Aviation LLC, CES Aviation V LLC, CES Aviation IX LLC, East Dover Limited. In addition, Lehman Brothers International (Europe) (an unlimited company), Lehman Brothers Ltd., Lehman Brothers Holdings PLC and LB UK RE Holdings Ltd. filed for administration in the United Kingdom. Lehman Brothers Holdings Japan Inc. and Lehman Brothers Japan Inc. filed for civil rehabilitation in Japan. [The claims against the US debtors other than LBI and the debtors in these foreign proceedings will be administered in those proceedings, and are not subject to the bar date and procedures set in the SIPA proceeding.]
 The term "customer" of a debtor means any person (including any person with whom the debtor deals as principal or agent) who has a claim on account of securities received, acquired, or held by the debtor in the ordinary course of its business as a broker or dealer from or for the securities accounts of such person for safekeeping, with a view to sale, to cover consummated sales, pursuant to purchases, as collateral security, or for purposes of effecting transfer.
 The term "customer name securities" means securities which were held for the account of a customer on the filing date by or on behalf of the debtor and which on the filing date were registered in the name of the customer, or were in the process of being so registered pursuant to instructions from the debtor, but does not include securities registered in the name of the customer which, by endorsement or otherwise, were in negotiable form.
 A "net equity claim" is the dollar amount of a customer’s account that would have been owed by the debtor if the debtor had hypothetically liquidated the securities positions of the customer on the SIPA or bankruptcy filing date (at the then prevailing market values), minus any indebtedness of the customer to the debtor.
 The trustee shall, to the extent that securities can be purchased in a fair and orderly market, purchase securities as necessary for the delivery of securities to customers in satisfaction of their claims for net equities based on securities, in order to restore the accounts of such customers as of the filing date.
Gibson, Dunn & Crutcher’s Business Restructuring and Reorganization Practice Group is available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or any of the following practice group members:
Michael A. Rosenthal, Co-Chair – New York (212-351-3969, [email protected])
Craig H. Millet, Co-Chair – Orange County (949-451-3986, [email protected])
David M. Feldman, Co-Chair – New York (212-351-2366, [email protected]
Janet M. Weiss – New York (212-351-3988, [email protected])
Matthew J. Williams – New York (212-351-2322, [email protected])
J. Eric Wise – New York (212-351-2620, [email protected])
Oscar Garza – Orange County (949-451-3849, [email protected])
Dennis B. Arnold – Los Angeles (213-229-7864, [email protected])
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