The Liquidation of Lehman Brothers Inc, the New York Brokerage of the Lehman Global Enterprise

Abstract This chapter explores the statutory and regulatory regime in place in 2008 that governed the operation and liquidation of Lehman Brothers Inc. (LBI) and highlights key legal issues in the liquidation. Section I provides an overview of the Securities Investor Protection Act (SIPA) statute. Section II describes LBI, its role as the broker-dealer in the global Lehman enterprise, and the story of its collapse in September 2008. Section III highlights some hallmarks of the LBI liquidation, including the emergency sale to Barclays, account transfers, the transfer of all of LBI’s subsidiaries on the eve of LBI’s filing, the atomization of foreign affiliates with different regulatory regimes, and the role of LBI as a counterparty in the financial products market, which led to a substantial general estate. Section IV addresses the impact of the broker-dealer liquidation under SIPA on the treatment of complex financial instruments. Section V reflects on lessons learned.