The Work

February 9, 2010 6:00 PM

The Lehman Examiner's Report Will Not Be Public...For Now

Posted by Brian Baxter

A 2,200-page report compiled by Jenner & Block chairman Anton Valukas, court-appointed receiver in the Lehman Brothers bankruptcy, is under seal.

In a four-page motion filed Monday with the U.S. bankruptcy court in Manhattan, Valukas revealed that he has completed his review of the circumstances surrounding Lehman's collapse and the subsequent sale of some of the investment bank's assets and liabilities to Barclays.

In a separate motion seeking to unseal the report, the Jenner litigator wrote that, "a process must be established so that the Report can be unsealed as soon as practicable," noting that there is "strong presumption and public policy in favor of public access to court records."

U.S. bankruptcy judge James Peck granted permission for Valukas to file his findings under seal. Excluding appendixes, the examiner's opus comes in at roughly 2,200 pages.

"It's certainly comprehensive, but right now there's nothing for me to say until the court takes its steps in terms of unsealing it," Valukas says. He declined to comment further, citing the sensitivity of the subject matter.

The 66-year-old former federal prosecutor was appointed receiver a year ago and given full subpoena power to look for evidence of fraud and misconduct in the wake of Lehman's fall in September 2008. Under U.S. bankruptcy law, creditors can request the appointment of an examiner whenever a debtor owes more than $5 million in a bankruptcy case.

As previously reported by The Am Law Daily, Valukas owes his appointment to a push by The Walt Disney Company, Bank of America, and several other creditors for an examiner to investigate how Lehman's holding company moved money between its numerous subsidiaries and how the bank sold certain strategic assets to Barclays.

The alleged "fire sale" of Lehman's North American assets to Barclays is currently the subject of complex commercial litigation in the bankruptcy court between the two financial institutions, as noted by our colleague Zach Lowe in this recent report.

Bloomberg reports that in order for Valukas to probe various allegations, including whether Barclays improperly benefited from the Lehman asset sales or if as a major short-term lender to Lehman, JPMorgan Chase triggered the demise of its competitor, the Jenner litigation partner negotiated confidentiality agreements with the financial institutions he interviewed in order to gain access to certain information. As such, the unsealing of a report containing all or part of those disclosures requires the consent of those parties or a judge's ruling, according to Bloomberg.

A lawyer for JPMorgan, Wachtell, Lipton, Rosen & Katz restructuring partner Harold Novikoff, told Bloomberg that the bank had worked out all of its disclosure issues with Valukas.

According to court filings, a hearing on the issue is scheduled for March 11. Peck's decision on whether or not to unseal the report will presumably follow, unless the various parties involved consent to the disclosures before that time.

Valukas isn't the only one in the Lehman bankruptcy who will be issuing a report. Hughes Hubbard & Reed partner James Giddens also has subpoena power as the court-appointed trustee overseeing the liquidation of Lehman's broker-dealer unit under the Securities Investor Protection Act.

"I think we'll have something preliminary in a couple of months," says Giddens, chair of Hughes Hubbard's bankruptcy practice. "The focus on that is different from the examiner's report."

Giddens tells us he's heard some scuttlebutt about the contents of Valukas's report. Citing confidentiality issues, he declined to disclose anything about it.

"I think most of the subject matter will be made public because of the creditor and public interest," Giddens says. "Part of [Valukas's] operation had to be done under confidentiality agreements with people, so he has to observe those, but eventually I think the court will lift [the seal], although that may take some time."

For Valukas and Jenner, the appointment in the Lehman bankruptcy has been a profitable assignment. The Am Law Daily reported in December that the firm had billed for $27.9 million in fees and expenses for work done through November 30.

The labor intensive nature of the work--court filings show that Valukas and his team interviewed more than 100 people and reviewed in excess of 10 million documents--mean that examiner's and their legal teams are among the biggest billers in bankruptcy cases. (Representing Valukas in the Lehman case are Jenner bankruptcy chair Daniel Murray, bankruptcy partners Patrick Trostle and Heather McArn, and litigation partner Robert Byman.)

K&L Gates internal investigations partner Michael Missal racked up the billables before issuing an examiner's report in the bankruptcy of subprime loan originator New Century two years ago (Missal also served as an examiner in WorldCom), while an Alston & Bird team handled a similar role in the Enron bankruptcy that eventually broke the $100 million mark.

The Lehman bankruptcy is the largest in U.S. history.

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