Pulsar Re Sues Lehman Over $450 Million
Pulsar Re Ltd., a Bermuda-based reinsurance company, has filed a lawsuit in New York claiming Lehman Brothers Holding Company “looted” $450 million which was meant to be held in a segregated account, Bloomberg and Reuter are reporting today [Jan. 27].
Lehman took the cash in a “one-sided repurchase transaction” intended to help salvage the investment bank’s failing business, Pulsar alleged in the complaint filed yesterday in US Bankruptcy Court.
Pulsar said it assumed $1 billion of risk from Lehman’s Bermuda-based reinsurance unit, Lehman Re Ltd. To collateralise its obligations and cover the risk, Pulsar said it transferred $450 million in cash that was supposed to be held by Lehman Re in a segregated custodial account at Lehman’s brokerage unit.
But Pulsar says the cash was transferred to Lehman Commercial Paper Inc. in a repurchase transaction “backed by illiquid and materially overvalued assets”. Lehman Re was later liquidated, and Pulsar lost its money, according to the complaint.
Pulsar is suing the Lehman holding company and Lehman Commercial Paper by asking a bankruptcy judge to declare the existence of a constructive trust, so it can obtain the misappropriated cash. Pulsar said it learned that its cash was improperly transferred only after Lehman filed for bankruptcy in September 2008.
Lehman didn’t immediately comment on the lawsuit.
Once the fourth-largest investment bank, New York-based Lehman filed the biggest bankruptcy in US history, listing $613 billion in debts.
