Harbinger Asks Probe of Lehman Cash Transfers Before Bankruptcy

By Christopher Scinta

Sept. 27 (Bloomberg) — Harbinger Capital Partners Special Situations Fund L.P. wants to probe cash transfers among Lehman Brothers Holdings Inc. and its affiliates that occurred in the month before it filed the largest bankruptcy in history.

Harbinger, a unit of Harbert Management Corp. of Birmingham, Alabama, also wants testimony from Lehman’s finance chief Ian Lowitt and to get documents explaining asset transfers among Lehman, Lehman Brothers International (Europe) and Lehman Brothers Special Financing Inc., according to Harbinger’s request filed yesterday in U.S. Bankruptcy Court in New York.

Lowitt’s statement accompanying Lehman’s Sept. 15 Chapter 11 filing doesn’t make clear how cash moved to and from the holding company to affiliates, the motion for an investigation said.

Bay Harbour Management LC, another hedge fund, challenged the court order approving the sale of Lehman’s North American business to Barclays Plc. The fund had said $8 billion was improperly transferred out of the investment bank’s European units prior to its collapse.

“Court filings provide no disclosure as to where the reported massive cash sweeps went, or whether LBI had recently received cash infusions from Lehman affiliates, in derogation of the rights of creditors,” according to Harbinger’s filing.

Lehman spokeswoman Monique Wise couldn’t immediately comment on the Harbinger filing. Harbinger Special Situations Fund and Harbinger Capital Partners Master Fund I Ltd. said they are owed at least $250 million by Lehman Brothers Special Financing Inc.

Frozen Assets

PricewaterhouseCoopers, the administrator for Lehman’s U.K insolvency, said yesterday dozens of hedge funds that used Lehman as a prime brokerage to borrow securities and clear trades will have to wait weeks to retrieve assets frozen by the bankruptcy.

Lehman, which listed $613 billion of debt when it filed bankruptcy, won approval from U.S. Bankruptcy Judge James Peck for the $1.54 billion sale to London-based Barclays. Peck overruled objections from New York-based Bay Harbour and other Lehman creditors who said the sale was moving too quickly.

Separately, Friedman Billings Ramsey Group Inc. filed suit against Lehman’s brokerage unit demanding the return of a Fannie Mae mortgage-backed security with a $250 million face value. FBR said in its suit, filed in the bankruptcy court, that it tendered the repurchase price of $227.3 million and the trustee appointed by the Securities Investor Protection Corp. to wind-down the brokerage has refused to return the mortgage notes.

Friedman says the mortgages aren’t assets of Lehman’s brokerage to be administered by the trustee. Friedman has already resold the securities and can’t complete that transaction because the Lehman brokerage won’t return the mortgages, the suit said.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Christopher Scinta in New York bankruptcy court at csinta@bloomberg.net.
Last Updated: September 27, 2008 12:39 EDT