Lehman Brothers Holdings, Inc.

Lehman Brothers Holdings, Inc.

The Wilson Law Firm, P.C. was asked to represent shareholders in the Lehman Brothers Holdings, Inc. (“LBHI”) bankruptcy proceedings because of our prior experience successfully representing shareholders in other large bankruptcy cases and our willingness to accept such representation on shared, essentially contingency fee, basis.

As of August 31, 2008, LBHI’s audited financial statements indicated over $28 billion in shareholder equity. LBHI was an investment bank, providing various professional services and owning interests in many thousands of individual holding companies. There is no indication of any accounting irregularities or fraud; no history of operating losses; and no history of negative cash flow. LBHI had a history of astute investing, mostly structured in separate subsidiary corporations or limited liability companies.

LBHI filed its Chapter 11 petition on September 15, 2008, reportedly with little or no advance preparation or planning, and only days after releasing its August 31 financials.

Within 48 hours, LBHI’s trading and brokerage operations, employing approximately 12,000 employees, were under a contract of sale to Barclays, at the insistence of various federal agencies. That sale was approved on September 19, and closed on September 22, essentially for the cost of the real estate transferred, with no additional consideration for this extremely valuable on-going business.

By the end of the week of September 22, the vast majority of LBHI’s remaining 18,000 worldwide employees had been laid off, including virtually all senior employees with any institutional knowledge as to the status of LBHI’s several thousand investments. The CEO has subsequently been removed and most of senior management has been lost.

In order to protect the interests of LBHI Shareholders, we filed a Motion for Appointment of an Official Equity Committee, as in our professional opinion and experience, only such a official committee has the standing to influence the outcome of a case. Without such an official committee, any group of shareholders, even huge shareholders, can be and are routinely denied information, excluded from the decision making process, and otherwise simply ignored.

The Office of the United States Trustee denied our written request for appointment of an Official Equity Committee, effectively ignoring LBHI’s audited financial statement. On October 16, 2008, the bankruptcy court denied the Motion for Appointment of an Official Equity Committee (Docket Number 1095), on the basis that there was no likelihood or possibility of an equity recovery.

As of the October 16 hearing, remaining LBHI employees numbered only a few hundred. As LBHI’s primary on-going business was financial services, it had by then lost substantially all of its ability to provide services and therefore virtually all of its value as an on going concern.

The Chief Restructuring Officer and his firm are entirely new to LBHI, being unfamiliar with its history, market place, and most importantly, with the specifics of its many thousand individual investments. As the CRO reported to the Court, he and his team are ‘just beginning to get their arms around’ that small portion of LBHI which was left.

From the pleadings, it appears that neither LBHI nor Barclays fully understands exactly what has been sold and what has been retained, as both continue to submit followup orders and schedules under seal clarifying various aspects of the arrangement between them. Other parties are seeking discovery regarding various cash transactions and the location and ownership of specific securities.

Additionally, as a result of, or in conjunction with the Barclays transaction, there may have been a substantial reorganization of the remaining subsidiaries, without any consideration as to whether such action would have constituted an administrative consolidation or what effect it might have had on inter-company liabilities and third party claims. The most recent organizational chart, a copy of which is available here, confirms that LBHI had several thousand direct subsidiaries and approximately ten thousand indirect subsidiaries.

Within thirty days of filing for Bankruptcy “Protection”, the LBHI Chapter 11 “Reorganization” had essentially become a hurried liquidation. In our opinion, the “smartest guys in the room” are all fools in near panic, disposing of assets without any actual knowledge of their value, without determining whether there is any necessity of sale, and without preserving the potential of reorganization. In our opinion, a quick resolution to the difficult issues presented, coupled with an Administration which had decided to sacrifice LBHI, had taken precedence over any statutory mandate for the preservation or maximization of value.

Under these circumstances of these sales, including the Barclays’ sale and the many others that now appear of record in the pleadings, the Bankruptcy Court was necessarily correct in concluding that there is little likelihood of an equity distribution. Essentially the Court’s conclusion will be proven true by the Debtors’ handling of its case.

$28,000,000,000 of hard earned equity will be lost to poorly considered sales, administrative consolidations, and the chaos of bankruptcy, without proper accounting, valuations, or fundamental business considerations, justified by allegations of “exigent circumstances” and the exercise of “business judgment” by outsider professionals.

While we may long debate whether LBHI was “too big” to fail, it is clear that it was “too big” for a successful Reorganization in Bankruptcy.

The Wilson Law Firm, P.C., has therefore advised its LBHI shareholder clients that it can not recommend further expenditures to advocate on behalf of a shareholder recovery.

The Wilson Law Firm, P.C., is currently sponsoring a legislative initiative to amend the Bankruptcy Act to require the appointment of an Official Equity Committee in any case involving a publically traded corporation that previously reports positive equity on audited financial statements. The purpose of this legislative initiative is to protect public shareholders from unnecessary losses by requiring Bankruptcy Courts to recognize and reconcile the expectations and results of large corporate reorganizations with SEC filings and generally accepted accounting principles. While not every bankruptcy case with audited equity will provide an equity recovery, in such cases an Official Equity Committee should be appointed to prevent unnecessary losses that Official Creditor Committees, who will frequently displace shareholders upon confirmation, have no interest to avoid.

Copies of the House Oversight Committee’s hearing on the Lehman Brothers matter, as well as selected news reports and other related documents, may be found at the News Articles link at right.

Please contact us by email if you have any questions or require further information.

The Wilson Law Firm, P.C.
L. Matt Wilson, Principal


This information is not intended to be used as the basis of any investment decision, nor should it be interpreted as investment advice or opinion. You should not consider this information to be investment advice or opinion, and should instead seek advice from another attorney or independent financial advisor with respect to any investment in the securities mentioned herein. You should neither construe any of the information contained herein as business, financial, investment, hedging, trading, regulatory, tax or accounting advice nor make this information the basis for any investment decisions made by or on behalf of you, your accountants, or your managed or fiduciary accounts, and you should consult another attorney, your business advisor and/or tax and accounting advisors concerning any contemplated transactions. The Wilson Law Firm, P.C. takes no responsibility for any investment related actions or omisions made in reliance on the information contained herein.