By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW
Goldman Sachs Group Inc. (GS) says Lehman Brothers Holdings Inc.
(LEHMQ) has set "an arbitrary and unrealistic timeframe" in its
attempt to get Goldman to turn over emails in a bankruptcy probe of
whether a secret Wall Street campaign helped short sellers profit
from Lehman's demise.
In court papers filed Monday with the U.S. Bankruptcy Court in
Manhattan, Goldman said it wants until July 22--or three weeks
after a deadline set by Lehman--to produce the results of keyword
searches from 37 proprietary trading-desk custodians in the months
preceding Lehman's collapse in September 2008.
"The Motion to Compel is designed purely to harass Goldman Sachs
and should be denied as baseless, unnecessary and unwarranted, and
the Debtors should be required to reimburse Goldman Sachs the costs
it incurred in defending the Motion to Compel as well as fees and
costs incurred in producing documents," Goldman Sachs said in the
filing.
A Lehman spokeswoman declined to comment.
Lehman is probing what it calls a Wall Street-wide campaign
against the investment bank in the months ahead of its September
2008 collapse that garnered profits for naked short sellers, or
investors that bet against a company's stock without physically
locating the shares.
The Securities and Exchange Commission issued strict regulations
against naked-shorting during the financial crisis, but regulators
have typically had a difficult time enforcing those rules.
A court hearing on the matter is set for Wednesday.
In late May, Lehman accused Goldman of "moving at a glacial pace
in an effort to run out the statute of limitations without
producing the requested documents." The two sides had previously
agreed to search certain terms in emails from 37 custodians, but
Lehman said in its late May filing that up to that point, Goldman
had only searched 11 of those individuals' messages for the
three-page-long list of keywords.
In the months and days before Lehman collapsed in September
2008, at the height of the financial crisis, the bank--particularly
then-Chairman and Chief Executive Dick Fuld--repeatedly blamed much
of the plunge in Lehman's stock price on pressure created by rumors
and short selling. While the collapse of the bank has since been
blamed much more on the diminished value of its assets, Lehman is
still trying to assess how much of the losses can be attributed to
the spreading of rumors.
Lehman's collapse in September 2008 marked the largest U.S.
bankruptcy case ever filed. Since then, a team of hundreds of
bankruptcy professionals under the direction of restructuring firm
Alvarez & Marsal has managed Lehman's assets, which include
real-estate holdings, corporate debt and derivatives, for the
benefit of creditors.
Lehman has filed an updated plan to distribute its assets, as
have two other parties: one by a group of bondholders led by
hedge-fund manager Paulson & Co. and one by a group of
creditors of Lehman's so-called non-operating subsidiaries, led by
Goldman and distressed investment manager Silver Point Capital LP.
After being asked, the Paulson-led group has disclosed detailed
information about its holdings and wants the court to force Goldman
and its group members to do the same. A hearing on that issue,
originally set for Wednesday, has been pushed back to July amid
objections from the investors in the group.
Lehman estimated earlier this year that it will likely have $322
billion in allowed claims against the estate, with $272 billion
from the parent company and about $50 billion from its various
subsidiaries. The bank increased creditors' expected net recovery
by $2.6 billion from the $57.5 billion it estimated in a September
court presentation.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-By Joseph Checkler, Dow Jones Newswires; 212-416-2152;
joseph.checkler@dowjones.com