Lehman Bankruptcy Trustee Sues Citibank to Recover $1.3 Billion


The Lehman Brothers Holdings bankruptcy trustee has sued Citibank to recover more than $1.3 billion, according to Dena Aubin’s March 18, 2011 article in Reuters. The $1.3 billion includes a $1 billion deposit demanded by Citibank to continue providing foreign exchange settlement services to Lehman’s broker subsidiary (LBI) after the bankruptcy filing. Citigroup also froze more than $300 million in additional deposits, and could face up to $3 billion in claims from Lehman’s bankruptcy proceedings, according to the article.

Bankruptcy law generally regards a payment made on the brink of, or after, bankruptcy to be an illegal “preference” to one creditor over the others, which is recoverable by the bankruptcy trustee.

LBI did not file for bankruptcy with its parent but remained in business while its pending transactions were wound down, according to the article.

According to the article, citing the complaint, Citibank coerced the payment: “Citibank had considerable leverage — and knew that it had considerable leverage — to extract concessions from LBI for its benefit and to the detriment of LBI’s customers and other creditors.” Citibank notified LBI it was cutting off its settlement services and agreed to continue them only if it received a $1 billion deposit in a new Citibank account. “LBI, at a time of increasing financial distress, found itself in the coerced position of facing a demand for funds that it could not refuse.”

Citigroup says the deposit covers losses it suffered in settling Lehman trades during the panic caused by its parent’s bankruptcy filing, according to the article.

The case is In Re: Lehman Brothers Inc vs Citibank et al, U.S. Bankruptcy Court, Southern District of New York, No. 08-01420.

Page Perry has over 125 years collective experience representing institutional and individual investors in securities-related litigation and arbitration all over the country. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 40 occasions.