* Demands return of cash transferred to Citi ahead of Ch. 11
* Says Citi trying to use cash to offset "inflated" claims
By Nick Brown
Feb 9 Lehman Brothers Holdings Inc
has sued Citigroup Inc to recover $2.5 billion
transferred in the months leading up to Lehman's historic
collapse, saying Citigroup is wrongfully keeping the money at
the expense of other creditors.
In a complaint filed late Wednesday in the U.S. Bankruptcy
Court in Manhattan, Lehman said Citigroup demanded the money as
economic conditions worsened in 2008, largely to protect itself
in case of problems in Lehman's trading accounts.
But when Lehman filed its record-breaking $639 billion
bankruptcy on Sept. 15 of that year, Citigroup wrongfully kept
the money, claiming it could use it to offset nearly $2 billion
in other claims.
Lehman said those claims are rooted in swap agreements
between the companies, and are "inflated" by more than $1
billion. It said Citigroup acted in a wrongful attempt to ensure
that it got paid ahead of other creditors.
The 21-count complaint seeks a return of the money and a
reduction or disallowance of claims by Citigroup, the
third-largest U.S. bank by assets.
Citigroup rejected Lehman's allegations, saying it demanded
the cash deposits to protect shareholders from any losses in
case of Lehman's demise, which it did not want to occur.
"Citi went out of its way to try to help Lehman prior to its
bankruptcy filing," spokeswoman Danielle Romero-Apsilos said in
Lehman's Chapter 11 restructuring plan will pay out about
$65 billion to creditors, and was approved by U.S. Bankruptcy
Judge James Peck in December.
The company, once Wall Street's fourth-largest investment
bank, hopes to emerge officially from bankruptcy and begin
making payouts soon.
The lawsuit is Lehman Brothers Holdings Inc et al. v.
Citibank NA et al., U.S. Bankruptcy Court, Southern District of
New York, No. 12-1044. The bankruptcy is In re Lehman Brothers
Holdings Inc in the same court, No. 08-13555.