By Jonathan Stempel
NEW YORK, Aug 5 (Reuters) - Barclays Plc isentitled to about $6 billion of disputed assets as part of itshurried purchase of much of Lehman Brothers Holdings Inc'sbrokerage unit at the height of the 2008 financial crisis, afederal appeals court ruled.
Tuesday's decision by the 2nd U.S. Circuit Court of Appealsin New York is a setback for the brokerage's creditors,including Lehman affiliates and hedge funds, for whom thetrustee James Giddens has been seeking to recoup money.
Lehman had been Wall Street's fourth-largest investmentbank. It had $639 billion of assets when it filed for Chapter 11protection on Sept. 15, 2008, making its bankruptcy by far themost in U.S. history.
Barclays won court approval to buy much of Lehman'sbrokerage business at a Sept. 19, 2008 hearing overseen by U.S.Bankruptcy Judge James Peck in Manhattan.
A dispute remained, however, over how to dispose of various"cash" assets of the brokerage. These included about $4 billionof margin assets held by third parties to support a Lehmanexchange-traded derivatives business, and $1.9 billion of"clearance box" assets used to process securities trades.
In February 2011, Peck said Barclays was entitled to theclearance box assets but not the margin assets. But in July2012, U.S. District Judge Katherine Forrest in Manhattanpartially reversed him, and said Barclays deserved both.
Upholding Forrest's ruling, Circuit Judge Ralph Winter notedfor a three-judge appeals court panel that "ambiguities andloose ends were inevitable" given the "urgency under which thisdeal was executed."
But he said the sale agreement and a later "clarificationletter" showed Barclays should prevail, despite the emphasis indocuments and court hearings that "no cash" should be involved.
Otherwise, Winter said a buyer such as Barclays might havedeemed the purchase commercially unacceptable.
"It would be highly unusual for a buyer to purchase LBI'sETD business in its entirety but not the collateral that allowedthat business to exist, particularly in a time of economiccrisis when the value of the underlying assets, e.g., optionsand futures, would be extremely volatile," Winter wrote.
In a statement, Giddens said he is studying the decision andhas set aside appropriate reserves.
He also said the decision does not affect the $105 billionalready distributed to 111,000 former brokerage customers, orthe first planned distribution to general unsecured creditors.
Jonathan Schiller, a lawyer for Barclays, was notimmediately available for comment.
The case was argued in May 2013. At the time, Barclays andGiddens each controlled about half of the disputed assets.
The case is Giddens v. Barclays Capital Inc et al, 2nd U.S.Circuit Court of Appeals, No. 12-2322. (Editing by Grant McCool)