January 27, 2011 / 7:27 PM / 6 years ago

UPDATE 1-Lehman sued by Pulsar Re over $450 million

2 Min Read

(Adds Lehman comment)

NEW YORK, Jan 27 (Reuters) - Lehman Brothers Holdings Inc LEHMQ.PK has been sued by a reinsurer that wants control of $450 million it said it pledged to secure various obligations, and which should not be given to Lehman creditors.

Pulsar Re, a Bermuda-based reinsurer, filed a lawsuit on Wednesday in federal bankruptcy court in Manhattan in which it said Lehman improperly used $450 million it had placed with the company as cash collateral for reinsurance policies.

The lawsuit was filed on the same day that Lehman Brothers came out with a plan for paying back creditors $60 billion, or an average of about 18.6 cents on the dollar. Lehman filed for bankruptcy protection in September 2008 with about $639 billion in assets.

Lehman hopes creditors will approve the plan and that it can be confirmed by bankruptcy court before the end of the year.

Lehman spokeswoman Kimberly Macleod said on Thursday in an e-mailed statement that the company had just received the lawsuit, was reviewing it and would respond "in a substantive way at the appropriate time."

If Pulsar wins the lawsuit, Lehman would have $450 million less to pay other creditors.

Pulsar said in the lawsuit that Lehman used that cash to help shore up finances at the Lehman holding company as part of a broad effort to move illiquid assets to subsidiaries and other affiliates.

Pulsar said the cash collateral was not part of the Lehman estate and should be placed in trust for Pulsar.

Pulsar's lawsuit focuses on the so-called "repo 105" transactions at Lehman that the U.S. Securities and Exchange Commission and New York State Attorney General have focused on as problematic.

In December, New York State sued Lehman's accountant, Ernst & Young, accusing the company of by while Lehman ran a "massive accounting fraud" to decrease its leverage. (Reporting by Caroline Humer and Jon Stempel; Editing by Lisa Von Ahn)

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