It was reported on September 1, 2011 that the judge in the Lehman Brothers bankruptcy has approved a plan by Lehman Brothers’ bankruptcy estate to pay out about $65 billion to creditors. If creditors vote in favor of the distribution plan Lehman’s bankruptcy is expected to end with payments being made to creditors as early as the beginning of 2012.
While the potential $65 billion in bankruptcy distributions are enormous, creditors, which should include investors who bought Lehman Brothers principal protection notes and other Lehman structured products, would receive a recovery of only approximately 20¢ on the dollar. Such a payout would mean that investors still will lose 80% of their investment. Such a loss is in stark contrast with offering documents that represented that investors would receive all of their principal back if they held the Lehman Brothers securities until maturity.
Lehman’s bankruptcy plan will be sent to the bankruptcy estate’s 110,000 creditors, who will have until November 4, 2011 to vote on the plan. A confirmation hearing is scheduled for December 6, 2011, pending approval by Lehman’s creditors.
Importantly, a payment from the Lehman bankruptcy estate does not prohibit investors from pursuing a FINRA arbitration claim against the brokerage firms that recommended and sold the Lehman securities to investors. To date, numerous investors have filed FINRA arbitration claims against brokerage firm UBS, which sold approximately $1 billion in Lehman Brothers structured products to retail investors. Many of those cases have resulted in the recovery of substantial amounts of money for the investors.