Lehman Brothers Inc.’s 14-Year Liquidation Successfully Concludes

More than $115 Billion Returned to Customers and Creditors

New York, NY, September 28, 2022 – Judge Shelley C. Chapman of the U.S. Bankruptcy Court for the Southern District of New York today closed the Lehman Brothers Inc. (LBI) liquidation proceeding under the Securities Investor Protection Act (SIPA), the largest securities brokerage liquidation in U.S. history.

Commenced in 2008 in the midst of the worst financial crisis since the Great Depression, the 14-year LBI liquidation conducted by Trustee James W. Giddens resulted in the return of more than $115 billion to LBI customers and creditors without the use of funds from the Government or the Securities Investor Protection Corporation (SIPC).

  • Customers received $106 billion, fully satisfying the 111,000 customer claims. Most customer claims were satisfied within weeks of the liquidation.
  • Secured, priority and administrative creditors with allowed claims also received 100 percent distributions.
  • Distributions to unsecured general creditors with allowed claims totaled over $9.372 billion, representing a 41.2841 percent recovery.
  • With the creation of a novel liquidating trust construct established in June 2022, certain unsecured general creditors with allowed claims have the potential to receive further distributions from the LBI Liquidating Trust.

This outcome was unfathomable at the outset of the liquidation. As Trustee Giddens noted, “The pre-negotiated sale of substantially all of LBI’s U.S. brokerage assets to Barclays Capital Inc. allowed a significant portion of LBI’s customers to transfer to a new, solvent broker-dealer and offered the prospect of continued employment to several thousand former Lehman personnel. However, this sale and the pre-liquidation transfer of LBI’s valuable subsidiaries to its holding company left LBI with no liquid assets at the commencement of the liquidation against ultimately $23 billion in liabilities.” Mr. Giddens added, “Given these incredible obstacles to start the liquidation, these recoveries to customers and creditors were unimaginable and a testament to the SIPA framework and the support of SIPC.”

The liquidation of LBI began on Friday, September 19, 2008, in the United States District Court for the Southern District of New York. Its breadth and scope were unprecedented. The LBI proceeding addressed numerous complex issues – many that established key precedents for future SIPA proceedings. With 76 parallel affiliate proceedings involving hundreds of affiliates in 16 jurisdictions around the world, as well as settlements with Lehman affiliates, the recoveries achieved by the Trustee and his team exceeded $100 billion. The liquidation proceeding also involved the administration of more than 15,000 general creditor claims asserted against LBI, many of which required contested litigation and appeals.

Mr. Giddens, who was appointed Trustee by the Court at the outset of the proceeding in 2008, further noted that “the extraordinary results of the past 14 years were made possible by the active involvement of SIPC, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Industry Regulatory Authority (FINRA), the Federal Reserve Bank of New York and other regulators that provided substantial support and guidance, and of course, the judicious oversight of the United States Bankruptcy Court.”

“The LBI case ultimately taught us that a failure of a large financial institution should be avoided, but history tells us that it is inevitable. While the exact cause of that failure may presently be unknown, no law will prevent all causes of future financial institution collapses,” Mr. Giddens said. “It is therefore important to preserve SIPC resources and expertise to respond rapidly to future financial institution collapses.”

SIPC’s President and CEO, Josephine Wang, praised the Trustee and his team for the outcome, saying, “We thank the Trustee, his counsel and consultants for their outstanding and tireless efforts. The results achieved not only surpassed all expectations, but provided the much-needed relief to investors against the loss of their hard-earned savings.” Ms. Wang added, “The Lehman Brothers Inc. proceeding is a testament to the success of the SIPA program even under the most dire and challenging of circumstances.”

The Trustee has been represented by Hughes Hubbard & Reed LLP.
SIPC has been represented by Kenneth J. Caputo and Hemant Sharma.