A Citigroup Inc. unit was sued by Lehman Brothers Holdings Inc.’s brokerage trustee, who is seeking $1.3 billion for the bankrupt company’s creditors.
More than $1.3 billion in cash and other assets now held by Citibank and affiliates should go to creditors, said the trustee, James Giddens, in a lawsuit filed in Manhattan bankruptcy court yesterday. Citibank has no right to keep a $1 billion deposit, given to it for foreign exchange settlement services, the trustee said.
Another $700 million was given to Citibank as a pledge by Barclays Bank Plc as security for the same foreign exchange settlements the week the Lehman parent filed for bankruptcy, Giddens said. Lehman filed Sept. 15, 2008 and the brokerage, Lehman Brothers Inc., liquidated four days later on Sept. 19.
The trustee asked a judge to rule that Citibank willfully violated the “automatic stay” provision of the bankruptcy law when it seized the $1 billion deposit on Sept. 19, 2008, which forbids such transfers, Giddens said.
The brokerage trustee’s suit is one of many in bankruptcy courts, after creditors seize deposits to compensate them for pending losses on their loans. The banks argue that under commercial banking laws they had a right to set off the deposits against money still owed. Using bankruptcy law, debtors try to take back the deposits.
Bank of America Corp. lost such a lawsuit in November when the judge ordered it to return $500 million in deposits to the Lehman parent. The bank has said it will appeal his ruling.
Lehman’s brokerage owed Citibank over $15 billion, accumulated between Sept. 15, 2008, and Sept. 19, 2008, and Citibank seized the amount to reduce the obligations, Giddens said in the complaint.
Citigroup said earlier this month it could face demands by Lehman for $3 billion in funds taken around the time of the Lehman brokerage’s liquidation.
“The Trustee’s effort to recover these monies is unjustified and without merit, and Citi will vigorously defend its right to recover its losses,” said Citigroup spokeswoman Danielle Romero-Apsilos.
Lehman benefited from Citibank’s extension of credit to it amid panic provoked by its bankruptcy filing, and Citibank suffered more than $1 billion in losses for helping Lehman, she said. The money that the Lehman brokerage trustee wants to claw back was used by Citibank to partly cover losses, she said.
The main case is In re Lehman Brothers Holdings Inc., 08- 13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). Giddens’s suit is Lehman Brothers Inc. v. Citibank NA, 11-01681, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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