Investors harmed by the Lehman Brothers bankruptcy get mixed messages this week

The Lehman Brothers bankruptcy that shook the financial world in 2008 still has investors who lost billions in the collapse wondering when they will begin to recoup their losses. Two decisions this week – one by a judge and the other by the Lehman Estate – did little to bring clarity to the situation or hope that investors will see a significant portion of their money anytime soon, say securities attorneys at Vernon Healy, the investor advocacy law firm.

In one development, a New York bankruptcy judge cleared the way for Neuberger Berman Group LLC to buy the 48 percent remaining equity interest in that company from Lehman Brothers Holdings Inc. over five years, generating about $1.5 billion.

In a second development, Lehman Brothers Holdings Inc. said it would take on billionaire Sam Zell’s Equity Residential in a fight for control of Archstone, the company’s largest real estate asset. After the Lehman collapse, the company owned 47 percent of Archstone and banks held the remaining 53 percent. But the banks sold half their holdings to Zell earlier this month, and Zell is seeking to buy their remaining 26.5 percent. Lehman Holdings will seek permission this week from a bankruptcy judge to exercise its option to match Zell’s offer with a $1.33 billion offer of its own.

While the Neuberger Berman deal injects a significant amount of cash into Lehman Holdings’ coffers, it appears the money is coming in over five years, meaning investors may see a trickle of cash versus a lump sum. Some estimates put the overall recovery for most investors in the 18 to 20 cents on the dollar range. If these estimates are correct, then investors may suffer an 80 percent or more loss of principal from products that UBS represented to be “principal protected.”

“UBS simply deceived my clients and thousands of other investors – as well as many UBS financial advisors – with respect to the principal protection in these products.  This deception was especially egregious given what UBS really knew about Lehman’s financial situation, including the Archstone purchase,” said securities attorney Chris Vernon of the Vernon Healy law firm.

And the current Lehman contest with Zell over control of Archstone, while possibly viable for a healthy company is questionable in light of the bankruptcy, Vernon said.

“Lehman made a bad business decision in acquiring Archstone. Given the number of retail clients of UBS and other firms caught up in this bankruptcy as unsecured creditors,  Lehman should be focused on liquidating assets and distributing the proceeds to my clients and other unsecured creditors rather than extending the time that Lehman structured note investors have to wait to recoup what they can from the bankruptcy,” Vernon said.

Christopher Vernon represents investor clients with more than $10 million in losses due to the Lehman Brothers bankruptcy. Vernon’s investigation into Lehman structured products has been featured in AARP magazine.

Contact for media inquiries.

Chris Vernon
Vernon Healy

Lehman Brothers attempts to convert Archstone REIT deal debt

According to Reuters, Lehman Brothers is continuing its efforts to convert some of the $5 billion plus debt obligation from its 2007 leveraged buyout of Archstone Real Estate Investment Trust (Archstone REIT) into the equivalent of preferred stock and extend the repayment date on the balance of the debt.

As mentioned in an earlier commentary I wrote on the Lehman Brothers Bankruptcy Examiner’s Report and the Repo 105 issue, this REIT deal was a bad one for Lehman Brothers. Industry insiders such as UBS and other firms knew it overexposed Lehman’s balance sheet to the vagaries of the already precarious real estate market.

Most investors in Lehman Brothers Principal Protected Notes that were sold in the U.S. by firms such as UBS and Raymond James, and abroad by firms such as Citi and Credit Suisse, are looking to recover their losses through both claims against the sellers of these defective products and through mitigation efforts.

Claims against sellers include class action participation for smaller investors and FINRA arbitration for investors with more significant losses like those represented by our firm. Mitigation efforts by investors include  efforts to recover a likely small portion of investors’ Lehman notes investment through either filing claims in the Lehman Brothers bankruptcy proceeding — for those willing to wait — or investigating possible sales of these notes on what now might be an now-emerging secondary market. Exploring the possibility of selling on a secondary market is for those who wish to recoup funds sooner than the bankrupcty timetable and are willing to recoup less than they might ultimately receive through the Lehman bankruptcy.

A cross section of Vernon Healy’s clients who have filed FINRA arbitration claims involving Lehman structured notes includes baby boomers, a teacher, a hospital employee, wealthy retirees, and a charitable foundation and reveals how aggressively and indiscriminately that firms such as UBS were encouraging their financial advisors to recommend Lehman Structured notes to their client base. Vernon Healy filed a $1 million arbitration claim against UBS on behalf of an investor in February and an $800,000 claim against UBS on behalf of another investor in March.