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A judge on Thursday approved a settlement that calls for J.P. Morgan Chase to pay $861 million in cash and securities to customers of the defunct broker-deal business of Lehman Brothers Holdings.
The settlement is the largest to date reached by the trustee winding down’s Lehman’s former U.S. brokerage business.
“I’m satisfied that this is indeed an excellent result,” Judge James Peck of U.S. Bankruptcy Court in Manhattan said. He added, “This is obviously a very substantial step forward of the LBI liquidation.” LBI is the brokerage subsidiary, Lehman Brothers Inc.
Hughes Hubbard & Reed LLP’s Jeffrey Coleman, a lawyer for the trustee, said the avoidance of long litigation and the fact that most of the money will be paid in cash made it a great deal.
“The court’s approval of the J.P. Morgan agreement marks a milestone in the administration of the LBI Estate to recover assets to pay customer claims,” Giddens, also a Hughes Hubbard & Reed partner, said in a statement.
Former Lehman customers will receive all of the $861 million, $755 million of which is in cash. No parties objected to the settlement.
The deal largely settles the outstanding claims the trustee has against J.P. Morgan but doesn’t affect disputes between J.P. Morgan and Lehman Brothers Holdings. The holding company and J.P. Morgan are embroiled in two pending multibillion-dollar lawsuits.
The settlement, announced in April, came after the conclusion of the trustee’s two-year investigation into J.P. Morgan’s actions as the principal clearing bank for Lehman’s broker-dealer business.
The assets J.P. Morgan will turn over predominately come from cash and securities held in Lehman brokerage accounts that the bank had set aside pending a resolution with the trustee, J.P. Morgan said in a statement.
The settlement “will have no material financial impact” on the bank, J.P. Morgan said back in April.
According to court papers, much of the trustee’s claims against J.P. Morgan stem from securities the bank held but didn’t liquidate following Lehman Brothers’ collapse.
J.P. Morgan disagreed with some of the trustee’s findings but consented to turning over most of those funds in order to settle the dispute.
The trustee controls a $20 billion pool of assets, but how those funds will be divided between the broker-dealer’s estate and customers is still to be determined.
Lehman’s broker-dealer business is being wound down under the authority of the Securities Investor Protection Corp., which governs the liquidation of failed brokerage firms.
A team led by James W. Giddens has transferred some 110,000 brokerage accounts with a value of more than $92 billion out of Lehman Brothers following the investment bank’s collapse in 2008. The bulk of the Lehman customer accounts, with assets of more than $40 billion, have been transferred to Barclays PLC.
The broker-dealer’s bankruptcy case is being administered separately from Lehman Brothers Holdings’ Chapter 11 proceeding.