A bid by the hedge fund Paulson & Co. to force Lehman Brothers Holdings Inc. creditors to disclose trades in the defunct firm's debt is a "fishing expedition" meant to "intimidate," according to debtholders such as Bank of America Corp., Citigroup Inc. and the German central bank.
Paulson is part of a creditor group including the California Public Employees' Retirement System that wants to control the disposal of Lehman's $61 billion in assets. Its plan will compete for votes with Lehman's proposal, and another from a group including Goldman Sachs Group Inc.
Paulson and Calpers want rivals to disclose how much Lehman debt they hold and how much they paid for it before they can vote and speak out in court as a plan is chosen. Paulson was ordered by a bankruptcy judge in April to reveal that it paid as little as 9 cents on the dollar for some of its $4 billion in Lehman bonds. More than 20 banks and hedge funds filed objections last week to the Paulson proposal.
It's an "impermissible fishing expedition" for trading information, Citi, along with Silver Point Capital LP and TPG Capital, said in a court filing. It's "nothing more than a litigation tactic designed to attempt to intimidate parties in interest into abandoning any efforts to oppose" Paulson-Calpers' plan, B of A said in a filing.
Other Lehman creditors that would have to disclose details of their holdings include JPMorgan Chase & Co., Barclays PLC, Morgan Stanley, Deutsche Bank AG and Credit Suisse Group AG. Lehman failed in 2008 with assets of $639 billion.
"There may be some of that sense that people will go away if they have to put their cards on the table," said Stephen Lubben, a professor at Seton Hall University School of Law. "Maybe people will be embarrassed to have that disclosed."
The Paulson group said in a court filing last month that it was seeking disclosures "to promote greater transparency" as creditors fight over Lehman's assets. "The prospect of conflicting motives arising during plan negotiations and later plan-related litigation is considerable," the group said.
Paulson's group, which holds about $16 billion in Lehman bonds, would pay bondholders about 25.4 cents on the dollar, while Goldman's group would pay about 16 cents. Goldman's group has not been told to disclose its holdings or the prices paid, though Lehman wants such information from anyone with a rival plan.
Bankruptcy law calls for groups or committees that are influencing a bankruptcy plan to show, among other things, what stakes they hold and what they paid for them. Paulson-Calpers wants trading data even from individual creditors and anyone who is gathering data about Lehman before a vote, said Citi's distressed debt trading desk, which filed its protest with other parties on June 8.
B of A, also with an active distressed-debt trading desk, said it would be "enormously burdensome" to disclose all trades in Lehman debt, and such disclosure would reveal "highly sensitive trading information."
B of A and its Merrill Lynch unit, which hold derivative claims against Lehman, are among 13 "big bank" claim holders identified by Lehman. On the same list are Goldman, Citi, JPMorgan Chase, Barclays, Morgan Stanley, Deutsche Bank and Credit Suisse, according to a filing.
Citigroup also holds claims on Lehman Brothers Treasury Co., which is being liquidated in the Netherlands. Group members should not have to reveal their trades, as every one of them "acts individually and does not, and does not purport to, speak for any other participant," they said in the filing.
