Lehman Brothers Inc.: the broker-dealer and its liquidation

analysisLehman Brothers Inc. was a Delaware corporation and broker-dealer registered under Section 15 of the Securities Exchange Act, wholly owned by LBHI, at 745 Seventh Avenue, New York; FINRA identifies it by Central Registration Depository number 7506. ^{1 2}

analysisAccording to NASD's August 2002 summary of disciplinary actions, NASD found that the firm failed to use reasonable diligence to obtain the best inter-dealer market for customer orders and committed related order-handling and short-sale violations. The firm consented to the sanctions and findings without admitting or denying the allegations, and was censured, fined $23,000 and ordered to pay $568.75 plus interest in restitution. ¹

analysisA December 2003 SEC notice in the Federal Register describes Securities and Exchange Commission v. Lehman Brothers Inc. (03 Civ. 2940, S.D.N.Y.), in which the SEC alleged that Lehman's practices gave its investment banking business inappropriate influence over its research analysts. Lehman consented to an injunction, disgorgement and penalties without admitting or denying the allegations, and expected related settlements with state agencies; the court entered the injunction on October 31, 2003, and the same day the SEC temporarily exempted affiliates from the resulting disqualification under the Investment Company Act. ²

analysisA commercial sanctions and politically-exposed-persons database lists Lehman Brothers Inc. under the topic of regulatory action, with ten undated entries attributed to FINRA. The listing records regulatory actions and is not a sanctions designation; it gives no dates, programmes or registration number tying each entry to the firm. ^{3 4}

analysisThe liquidation (Case No. 08-01420), begun on September 19, 2008, was conducted by trustee James W. Giddens with the law firm Hughes Hubbard & Reed LLP, where the court's mediator profile describes him as a partner and chair of the bankruptcy group and as an adviser to the Securities Investor Protection Corporation for 30 years. LBI sold assets to Barclays under a sale order entered in the SIPA proceeding. ^{1 2 3}

analysisAccording to the trustee, he administered more than $123 billion: over 110,000 customer accounts worth more than $92 billion were transferred to Neuberger Berman, Barclays Capital Inc. and other broker-dealers, $13.5 billion was distributed through the customer claims process, and all former securities customers were satisfied at 100% of net equity through settlements he negotiated with LBHI and LBIE. General unsecured creditors received at least 41.2841%, about $9.4 billion. In July 2017 the court upheld his decision to subordinate the claims of about 350 former executives and select employees under their Executive and Select Employee Plan. The court closed the case on September 28, 2022 and all allowed general unsecured claims were exchanged for interests in the LBI Liquidating Trust. ^{1 2}