At 7:56 am (London time) on 15th September 2008 administration proceedings were commenced for Lehman Brothers International (Europe) (LBIE). Tony Lomas, Steven Pearson, Dan Schwarzmann and Mike Jervis, all partners at PricewaterhouseCoopers LLP, were promptly appointed to be the joint administrators for LBIE and its affiliated entities in administration and have since served in that role. Since the commencement of LBIE’s administration proceedings, virtually all of the billions of dollars in assets belonging to LBIE’s prime brokerage customers have been trapped at LBIE. Now, nearly 10 months later, there appears finally to be a potential end in sight to this all too injurious freeze on customer assets.

LBIE’s former businesses
Prior to 15th September 2008, one of LBIE’s primary business functions was to serve as prime broker to a significant number of hedge funds, institutional investors and other clients. LBIE offered many services to its prime brokerage customers, including, among others, execution, clearing and settlement of trades, and custody, financing, foreign exchange, securities lending and valuation services. LBIE generally held customer assets as a custodian, with customers retaining a proprietary interest in the custodied assets. In many cases, legal title to the assets passed to LBIE; in those instances in which it did not, the assets became subject to a security interest in favor of LBIE. (Generally, LBIE did not hold assets itself, but rather through third party depositories, exchanges, clearing systems and sub-custodians.) LBIE thus provided its clients with the equivalent of many of the back-office functions that other, larger investors are able to handle in-house. Because many of LBIE’s prime brokerage customers relied heavily on LBIE for critical financial and operational matters, they were particularly distressed when LBIE commenced its administration proceedings, more so than they may have been in the context of insolvency proceedings for any other service provider. The devastation suffered by LBIE’s customers has only been exacerbated during the ensuing 10 months by their frustration at being subject to a continuing moratorium on the return of their assets.

As noted by Steven Pearson in a February 2009 statement, the joint administrators have faced numerous complex obstacles in their efforts to distribute trust property to LBIE’s customers. There currently are no facile means to determine with confidence a given customer’s entitlement to trust property; the joint administrators, therefore, have been reluctant to distribute assets for fear of liability for making improper distributions of trust property. Further, recipients of trust property have faced the spectre of claims being asserted against them by other LBIE customers in respect of distributions of trust property. The obstacles to distribution have arisen, in part, because not all LBIE creditors have responded to requests for information from the joint administrators, the joint administrators cannot rely upon LBIE’s books and records, and LBIE’s custodians, depositories, and affiliates have not provided all of the information that has been requested from them by the joint administrators. With complete information absent, the piecemeal resolution of customer claims is necessarily tainted by clouds of uncertainty.

PwC’s actions on 14th July 2009