(Bloomberg) Lehman Brothers Holdings Inc. is a business again two years after declaring the biggest bankruptcy in history, with billions of dollars in cash, 500 employees, real estate and investments in other bankruptcies.

The defunct New York-based investment bank, being run by Bryan Marsal, has almost $20 billion in cash and a monthly payroll of up to $45 million for managers and advisers. Hard-to- sell investments are being managed by 400 employees, and the firm is spending tens of millions of dollars on litigation set to stretch to at least 2012.

Lehman's strategy is unusual for a bankrupt company that's liquidating. Marsal, 59, is betting that he'll raise twice as much by holding Lehman's worst-performing investments as he would by conducting a fire sale.

"The liquidating estate is acting like an ongoing investment concern," said Lawrence A. Larose, a lawyer with Winston & Strawn LLP's financial-restructuring practice in New York. "It's trying to slowly extricate itself from these billions of dollars of investments around the world."

Marsal is not only pouring cash into distressed assets he inherited. He spent $1.4 billion to buy a bankrupt affiliate's loans on a bet he could sell them at a profit.

Creditors haven't pushed Marsal to "dump these assets into a very questionable market," Larose said.
Lehman, once the fourth-largest investment bank, with assets of $639 billion, foundered on Sept. 15, 2008, because of risky real estate bets and too much debt, which it tried to hide from investors, according to a report by examiner Anton Valukas.

Bunch of Stuff
"There was a bunch of stuff no one wanted to buy," said Chip Bowles, a bankruptcy lawyer at Greenebaum Doll & McDonald Pllc in Louisville, Kentucky, who has written articles on Lehman.

Marsal has been Lehman's chief executive officer since 2008. His restructuring firm, Alvarez & Marsal, has earned $326 million from Lehman through July.

Lehman won court approval in April to set up a unit called Lamco to manage its real estate, private-equity investments, derivatives and corporate loans for five years, also providing jobs for employees of Lehman and Marsal's firm.

Distressed ventures financed by Lehman range from Hawaii's 463-room Ritz-Carlton Kapalua resort, which it is seeking to foreclose on, to a site with a boarded-up hospital building in Oakland, California, according to a court filing in Lehman's bankruptcy case.

Marsal intends to raise $40 billion to $50 billion by selling Lehman assets in the next five years for unsecured creditors, he said in an interview. Selling soon after the 2008 financial crisis might have brought $20 billion or less, he said.

Slash Claims
The CEO plans to slash creditors' claims, initially $1 trillion, to $260 billion by disallowing duplicate and unsubstantiated demands.
"The period of time of liquidation varies with each asset and, as a fiduciary, management should strive for the highest present value of recovery for the creditors," Marsal said by e- mail.

About half of Lehman's $19.3 billion in cash on July 31 came from closing out derivatives trades, Lehman has said.
Some of Marsal's rescue missions for Lehman assets have faltered. Earlier this month, the company said it would close or sell its two banks, Woodlands Commercial Bank in Salt Lake City and Aurora Bank FSB in Wilmington, Delaware.

By the time it is ready to take those actions, Lehman will have spent $1.4 billion of creditors' money to shore up the two banks and protect equity which it values at $1.4 billion, according to court filings. Lehman said by spending the money it will avoid bigger losses.

Bid to Control
Lehman's bid to control the bankruptcy plan of hotel investment company Innkeepers USA Trust was rejected by a judge this month after creditors said it was "a classic insider transaction." Lehman aimed to salvage a $220 million loan to Innkeepers by lending it another $17.5 million and taking all the stock in the reorganized company.

"We will return to the drawing board and find a deal that is doable" with Innkeepers, Marsal said. "The estate expects to recover every dollar of new cash investment being made into the banks along with the full recovery of the current equity value of the banks."

Lehman got court approval in May to convert to preferred stock some $2.4 billion in secured loans to apartment owner Archstone, which went private in a $22 billion 2007 buyout. Collecting on the loans was "prone to uncertainty," it said in a court filing.

Lehman through July paid its managers, lawyers and other advisers almost $918 million. That topped the $757 million that energy trader Enron Corp.'s three years of bankruptcy cost, according to data compiled by Lynn LoPucki, a bankruptcy-law professor at the University of California, Los Angeles.

Marsal's restructuring firm, in addition to its hourly fees, has a stake in every dollar brought in for creditors. Its so-called success fee will equal 0.175 percent of all the money above $15 billion paid to unsecured creditors and can run to 25 percent of the fees his firm gets for dismantling Lehman over the life of the case, according to court documents.

The Lehman bankruptcy is the Jarndyce and Jarndyce of our time, said Nancy Rapoport, a bankruptcy-law professor at the University of Nevada, Las Vegas, referring to the almost interminable case in Charles Dickens's novel, "Bleak House," published serially in 1852 and 1853. "It has no economic reason to stop," she said.

One difference: Marsal says he'll raise billions of dollars for creditors. Jarndyce and Jarndyce depleted all the assets at stake.

Barclays Suit
Marsal intends to use lawsuits to recover money for creditors. From Barclays Plc, Lehman wants as much as $11 billion because of an alleged "windfall" the U.K. bank made on the purchase of Lehman's defunct brokerage.

Lehman accused JPMorgan Chase & Co. of helping cause its collapse by demanding $8.6 billion in collateral as credit markets contracted in 2008; it put the damage at billions of dollars.

Both banks denied wrongdoing and are fighting back. The Barclays trial in bankruptcy court will continue at least through September. JPMorgan's is set for 2012.

"If Lehman is only able to extract a modest settlement from Barclays or JPMorgan, creditor fears of getting back dimes on the dollar will become reality again," said Mark Williams, a lecturer at Boston University who wrote a book on Lehman, "Uncontrolled Risk."

Lehman hasn't announced when it will pay creditors, saying only that distributions must wait until after its reorganization plan is approved, possibly in the first half of 2011. Larose said it could be years before creditors are paid.

Lehman's creditors include Goldman Sachs Group Inc., UBS AG, the New York Giants and Abu Dhabi Investment Authority as well as individuals who hold Lehman bonds.