Ex-Lehman Creditors Attorney Grilled In Suit Against Barclays

25th Jun 2010 19:05

By Joseph Checkler Of DOW JONES NEWSWIRES Lehman Brothers Holdings Inc.'s (LEHMQ) 2008 deal to sell its broker-dealer assets to Barclays PLC (BCS) was closed so hastily that it was impossible to do the proper due diligence on valuing those assets, the former counsel to Lehman's unsecured creditors said Friday. Testifying in the U.S. Bankruptcy Court in Manhattan, Luc A. Despins said the unsecured creditors committee had such deep concerns about how some of Lehman's assets were marked that it never consented to Barclays' $45 billion purchase of the investment bank's brokerage in September 2008. Lehman is trying to recover more than $11 billion that it says Barclays pocketed in the deal. Lehman contends the discounted price of the original assets wasn't disclosed in bankruptcy court. The assets were worth about $50.6 billion. A key point of contention in the suit is how some of Lehman's illiquid assets were valued. Despins said last-minute changes to how those securities were marked raised questions that couldn't be answered immediately. Despins stepped down as the lawyer for the creditors committee in October 2008 when he notified his law firm, Milbank, Tweed, Hadley & McCloy, that he was leaving to join Paul, Hastings, Janofsky & Walker. The committee is now represented by Susheel Kirpalani of Quinn Emanuel Urquhart & Sullivan. Lehman has said there was a "secret" deal between the two sides to assign lower value to the assets, a deal it says only a few people knew about. Barclays President Robert Diamond testified earlier this week that the deal was done in good faith, and that the financial markets were in chaos at the time. In cross-examination, Barclays lawyer David Boies asked Despins several times why the committee didn't go to the court immediately, before the deal was officially closed, to raise its concerns. Despins responded that he first wanted to speak with Lori Fife and others from Lehman's bankruptcy law firm, Weil, Gotshal & Manges. When pressed by Boies, Despins said the main reason the committee decided against officially opposing the deal in court was that the Barclays transaction was still better than the alternative, liquidation. Despins described changes made to the original deal in the frantic five-day period leading up to Sept. 22, 2008, and the committee's desire to be kept apprised of all those changes, something the court required. "Look, you can do whatever you want, but we're not consenting to this transaction," Despins said he recalled telling Tom Roberts of Weil Gotshal after looking at the deal changes. Roberts was annoyed by that, Despins said, and his response was along the lines of, "Why am I talking to you?" Specifically, Despins told Boies that the committee thought securities that should have been valued at par were valued below par in the Barclays/Lehman transaction. In his questioning, Boies appeared to challenge Despins' ability to value securities, something Despins admitted he knows little about. He also cited the timing of his testimony. "You're asking about this transaction today," Despins said. He said the time that has passed since he last looked at the deal has made it difficult for him to remember "precise" details about what he thought about how the committee felt about the value of specific securities. Boies used as evidence highlighted text that showed Barclays was acquiring $72 billion worth of assets for $68 billion, quickly rebutted by Despins. "That deal you just described was not the deal the court approved," Despins said, a notation Boies called "a very good point." Boies asked Despins if he recalled that a valuation of the assets, made at the time of the transaction, was about $2.5 billion higher than the amount agreed to in court, meaning it was known all along that Barclays actually paid below-market prices for the assets. In early October 2008, Boies pointed out that Despins attended a presentation about the closed deal that cited a $5 billion reduction in the price of Lehman's assets. Despins said he attended the presentation but did not recall seeing that specific slide. The presentation was long, he said, and he wasn't sure of his "state of mind" during that specific part of the presentation. Despins said he didn't learn of the "negotiated $5 billion reduction" until well after he had left his job. Lehman's lawyers had pointed to emails sent by Despins after the deal closing to Weil Gotshal's Fife, in which Fife responded to his valuation questions that she was "really at a loss" as to why the committee was so concerned about the Barclays deal. Despins said he didn't know if a meeting ever happened. Despins' testimony Friday wrapped up three days of court hearings this week in the lawsuit. Judge James M. Peck, who is overseeing Lehman's Chapter 11 case, said the trial would continue on Aug. 23, when Barclays will call its first witness. -By Joseph Checkler of Dow Jones Newswires; 212-416-2152; [email protected] (END) Dow Jones Newswires June 25, 2010 14:05 ET (18:05 GMT)