Earlier this week, Barclays Capital Inc., the investment banking unit and capital markets unit of Barclays plc, and Lehman Brothers Inc., the brokerage unit of Lehman Brothers Holdings Inc., entered into a settlement under which Barclays Capital will receive approximately $689 million in cash and securities for securities belonging to customers of Lehman Brothers that were never transferred when Barclays plc closed the sale for Lehman Brothers on Septemb

Bankruptcy Court Hearing Regarding Sale of Lehman’s Investment Management Division

In light of the recent Chapter 11 bankruptcy filing by Lehman Brothers Holdings Inc. and the subsequent determination of the Securities Investor Protection Corporation (SIPC) to commence a proceeding placing Lehman Brothers Inc.

The Investment Banking Insolvency Panel of the FMLC has responded to Treasury’s consultation on developing effective resolution arrangements for investment banks. The response is wide-ranging and looks at clarity, transparency and access before setting out views on client assets and insolvency processes.

ISDA has written to Treasury on its plans to make insolvency regulations in relation to investment banks. It supports Treasury's plan to take legislative steps only if market practice and regulatory approaches do not work. It endorses the view that sophisticated counterparties should have as much flexibility as possible. It notes the interaction of any regime for investment banks with existing regimes must be clear but does not currently see a compelling case for changes to the current regime.

On September 15, 2008, Lehman Brothers Holdings Inc. ("Lehman Holdings") filed for Chapter 11 in the United States Bankruptcy Court for the Southern District of New York (Case No. 08-13555). None of Lehman Holdings’ U.S. subsidiaries have filed for bankruptcy at this point. In addition, while Lehman Holdings has certain subsidiaries that are regulated entities (e.g., banks, insurance companies, etc.), none of those entities has yet been placed into any kind of insolvency proceeding by the applicable regulators.

Treasury has published the 12 responses it received to its consultation on a special administration regime for investment firms resolution and draft legislation that takes into account its views on the responses. One Order clarifies that the definition of “client assets” includes money, but not money held in respect of insurance mediation. The other sets out the new regime. Respondents broadly supported the proposals and favoured an approach that would require the return of all client money and assets, not just segregated ones.

Following proposals Treasury made at the end of 2009, it has now published for consultation draft regulations setting up a special resolution regime for investment banks. The regime will apply to firms that meet all of the following three conditions:

FMLC has responded on aspects of Treasury’s consultations on resolution of investment banks. The paper’s main recommendations include:

A recent decision by the US District Court for the Southern District of New York regarding the terms of an engagement letter demonstrates the need to clearly articulate the intended purpose and scope of an engagement. As the case described below demonstrates, if there is any ambiguity with regard to whether or not a fee must be paid and/or when an engagement is terminated, the resolution of such ambiguity may depend upon the description of the engagement’s purpose.