After suffering the largest bankruptcy filing in U.S. history in the wake of devastating losses from the subprime mortgage crisis, Lehman Brothers Holdings Inc. sued Wellmont last week in U.S. Bankruptcy Court in New York, claiming the company cashed in bonds early to avoid a $12.8 million payment on a “total-return” swap transaction.
Under a total return swap, a company retains ownership of bonds while receiving set payments from an investing firm, which in return receives payments from the bonds’ owner from the increase in value of the bonds.
In filing the lawsuit, Lehman Brothers claims Wellmont sold the bonds prematurely, and still owes the set payment to the company. The company seeks $21 million in damages in the filing.
In trying to recoup some of its losses after the public controversy and subsequent bankruptcy, Lehman Brothers has filed numerous similar lawsuits against its former investors.
In the suits, Lehman claims many of its investors took advantage of its bankruptcy to the detriment of its creditors.
In an emailed statement, Wellmont spokesman Jim Wozniak said the lawsuit had no real basis.
“The Lehman Brothers bankruptcy in 2008 was the leading edge of a global financial crisis,” the statement read. “Before declaring bankruptcy, Lehman was the fourth-largest investment bank in the United States, serving thousands of investors and not-for-profit organizations. Those investors and not-for-profit organizations have had to deal with the aftermath of Lehman’s failure. Along with hundreds of other organizations, Wellmont disagrees with the basis of Lehman’s claims.”
Lehman Brothers exited bankruptcy in March 2012, but many of its creditors still seek billions of dollars in claims.