Lehman Wants Out of Bankruptcy, Hopes to Start New Subsidiary

Lehman Brothers
Lehman Brothers

After more than a year-and-a-half in bankruptcy, Lehman Brothers (LEHMQ) wants out. The fallen financial institution hopes to exit Chapter 11 and start semi-fresh, according to a recent bankruptcy court filing.

Under a reorganization plan filed on Monday, the tattered remains of Lehman would set up a new subsidiary called LAMCO, which would manage Lehman's debts and assets, as well as "third-party assets and production of revenue." The plan was filed in the U.S. Bankruptcy Court in the Southern District of New York.

"LAMCO will enable the Debtors to capitalize on existing infrastructure for the management of long-term investments and illiquid assets and will also provide long-term opportunities for the Debtors' employees," according to the plan.

What's the rush? By some estimates, the bankruptcy proceedings have cost Lehman more than $600 million in fees, and may have also cost the company billions more in terminated contracts because of the unplanned, frenzied filing. Now it's trying to make up for lost time.

"The Plan enables the avoidance of the potential enormous costs and extended time that would otherwise be incurred in connection with litigation of the multifaceted and complex issues associated with these extraordinary cases," according to the filing.

Habitual Cover-Ups of Lehman's Dire Condition

Among the methods Lehman reportedly is considering to avoid the "enormous costs and extended time" of litigation is pooling its assets. The filing argues that many of the $830 billion in claims filed against Lehman are duplicates -- claims made against both a subsidiary and the parent firm. If Lehman can repay its debts from a single pool and throw out duplicate claims, the actual debts might total only $115 billion. This is just an idea that's been floated, however, and it seems unlikely that Lehman's creditors will go for it. But the threat could work as leverage to convince those creditors to accept its proposed reorganization plan.

The bankruptcy exit plan was filed days after bankruptcy examiner Anton Valukas released a fairly devastating report on the company's habitual cover-ups of its dire financial condition, and roughly 18 months after the government declined to bail out the investment bank, leaving it to file for bankruptcy with upwards of $600 billion in outstanding debts.

Among the many financial sins Valukas uncovered at Lehman was the use of an accounting trick known as "Repo 105," by which Lehman moved assets off its balance sheet to make its finances look better. As DailyFinance previously reported, if it is discovered that Lehman's former CEO Richard Fuld knew about the Repo 105 transactions, he could face criminal charges for falsely certifying the accuracy of his company's financial statements while aware that underhanded accounting practices were being used to clean its books.