Lehman Europe wants funds back

Lehman Brothers in Europe has asked its U.S. counterpart to give back more than $8 billion that it says was trapped when Lehman's holding company filed for Chapter 11 bankruptcy protection in New York a week ago.

Lehman Brothers International in Europe wants the money back before key U.S. operations are transferred to Barclays PLC, the British bank that is buying Lehman Brothers Holdings Inc.'s North American banking business.

The money was moved to the U.S. in a routine transaction that happens over the weekends, according to a complaint filed as part of Lehman's bankruptcy proceedings. Once the funds moved to the U.S. on Sept. 12, they may not have moved back since Lehman filed for bankruptcy – the biggest in U.S. history – before dawn on the following Monday.

“The proposed sale transaction with Barclays has moved at a rapid pace and parties have not had an opportunity to trace the LBIE cash and investigate the assets that are proposed to be transferred as part of the sale,” lawyers for Amber Capital Investment Management wrote in a court filing Friday. “There is a risk that the LBIE cash has been transferred to, or is being held by, LBI and will be included as part of the Barclays sale.”

A lawyer for Bay Harbour Management LC, which has used Lehman as a prime broker, argued in court papers that the money may have been “misappropriated.” The lawyer, David Rosner, said the money transfer “may have been manipulated to prop up LBI for sale.”

James Peck, the judge in Lehman's bankruptcy case in New York, said Friday that the court would examine the issue in greater detail but put it aside so he could focus first on the sale of Lehman's investment banking and trading units as well as certain real estate assets to Barclays.

He approved the sale just after midnight Saturday.

“When Lehman filed for Chapter 11, (the money) wasn't sent to the U.K., as it's normally done,” PricewaterhouseCoopers PLC's U.K. spokeswoman Emma Thorogood said Sunday. “It's owed to the U.K.”

PricewaterhouseCoopers is the administrator in charge of winding down Lehman's European operations..