Almost five years after Lehman Brothers Holding Inc. filed for bankruptcy and set off the global financial crisis, managers of the bank’s estate are demanding millions of dollars from retirement homes, colleges and hospitals.
After selling most of its assets, Lehman now says it was shortchanged by scores of nonprofits that were forced to pay to exit derivatives that were unwound after the firm filed for Chapter 11 protection.
The Buck Institute for Research on Aging in Novato, California, gave Lehman $2 million in October 2008 to cancel a swap contract used to manage fluctuating interest rates. Lehman says it wants $12.1 million more and has assessed at least an additional $4.7 million in interest, the research center said in its most recent financial statement. The amount Lehman is seeking is more than half of what Buck spent last year researching Alzheimer’s, Parkinson’s and other diseases.
“Lehman is sort of a zombie-like bankruptcy entity: Instead of looking for brains, it’s looking for cash,” said Chip Bowles, a bankruptcy lawyer with Bingham Greenebaum Doll LLP in Louisville, Kentucky.
“Lehman doesn’t care. They have a duty to maximize their return to their bankruptcy creditors. If you’re Mother Theresa, they’ll go after you,” he said.
Exit Payments
Mary McEachron, Buck’s chief administrative officer and general counsel, declined to comment, except to say the dispute hasn’t been settled. Kim Macleod, a spokeswoman for Lehman in New York, declined to comment about the talks.
Before the financial crisis, Wall Street banks and insurers peddled financial derivatives known as interest-rate swaps to governments and nonprofits that bet they could lower the cost of borrowing. There were as much as $500 billion of the deals done in the municipal-bond market before the credit crisis, according to a report by Randall Dodd, a senior researcher on the Financial Crisis Inquiry Commission, published by the International Monetary Fund in 2010.
After Lehman filed for bankruptcy and the market for some municipal bonds collapsed, nonprofits and state and local governments paid more than $4 billion to Wall Street banks to exit the swaps, according to Bloomberg News. Some officials said they weren’t aware of the risks involved in the trades.
Confidential Mediation