A bankruptcy judge has ordered Bank of America Corp. to return $500 million it seized from Lehman Brothers Holdings Inc. shortly after the failed investment bank filed for Chapter 11 protection.

Judge James Peck of U.S. Bankruptcy Court in Manhattan ruled Tuesday that Bank of America's post-bankruptcy seizure of funds Lehman had posted as collateral before its Chapter 11 filing was "brazen, … unauthorized and impermissible."

In November 2008, Bank of America seized those funds without first seeking permission of the bankruptcy court, in an attempt to offset the $500 million against debts owed by Lehman. Lehman later sued, demanding that the funds be returned.

Judge Peck ruled that Bank of America's move violated bankruptcy law, which protects companies in Chapter 11 from having creditors seize assets. In his order, Peck said it was "astonishing that [Bank of America] would make the premeditated tactical decision to deliberately seize the collateral" without seeking court permission.

The judge said the bank acted with "apparent disregard for the consequences" and ordered it to repay Lehman's bankruptcy estate the $500 million plus interest.

Bank of America said it is considering an appeal.

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