02 Feb JPMorgan To Pay Lehman $797.5 Million to End Litigation Over Global Financial Collapse

JPMorgan Chase & Co will pay $797.5 million in cash to Lehman Brothers Holdings Inc. to end all litigation concerning the September 2008 global financial crisis.  Lehman entered into Chapter 11 bankruptcy on September 15, 2008–the biggest bankruptcy in U.S. history, with $613 billion in debt–and since that time has worked to recoup money for Lehman creditors. However the settlement is subject to approval by U.S. Bankruptcy Judge Shelley Chapman, in the United States District Court, Southern District of New York.  A hearing to consider approval is scheduled for February 16, according to a Securities and Exchange Commission filing.

In Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA (In re Lehman Brothers Holdings Inc.), 11-06760, U.S. District Court, Southern District of New York (Manhattan), a court filing made by Lehman stated the settlement avoids the uncertainty of continued litigation and millions of dollars of additional legal fees, and is “in the best interests of the Lehman estate and its creditors.”  There was no admitted wrongdoing.

JPMorgan was Lehman’s largest secured creditor, and was accused of exploiting its leverage as Lehman’s main “clearing” bank to siphon critical liquidity in the last few days before Lehman went bankrupt.  Lehman contends JPMorgan unnecessarily extracted billions of dollars of collateral, and by doing so obtained a windfall at Lehman’s expense.

This settlement comes after JPMorgan’s agreement last January to pay $1.42 billion in cash to resolve two of the three major pieces of litigation with JPMorgan left over from its 2008 bankruptcy–Lehman’s $6.3 billion in clearing-related claims and $2.3 billion in derivatives claims.  The earlier settlement was approved by the bankruptcy court, after U.S. District Judge Richard Sullivan ruled for JPMorgan, saying the largest U.S. bank had no obligation to keep Lehman alive and did not defraud it into providing collateral.

Lehman was Wall Street’s fourth-largest bank before it filed for Chapter 11 protection. Lehman emerged from bankruptcy in March 2012, and has since been winding down. Creditors have recouped more than $110 billion, and bondholders once projected to receive just 21 cents on the dollar have recovered close to twice that sum.