Investors have experienced a heavy blow in their battle with Lehman Brothers over losses on residential mortgage-backed securities.
Judge Shelley Chapman of the U.S. Bankruptcy Court for the Southern District of New York has denied the investors' request to increase the valuation to $12.1 billion from $5 billion. Investors claimed the defunct investment bank breached representations and warranties made on bonds backed by shoddy home mortgages and is suing for what remains of the Lehman’s bankruptcy estate.
In 2012, a judge ruled that $5 billion was enough to cover trusts on their claims. The investors originally sought $37 billion from Lehman. However, after hiring experts to analyze a sample of 5,000 loans, the trustee group estimated their total claims at more than $12 billion.
The four trustees in the case include U.S. Bank, Wilmington Trust, Law Debenture Trust and Deutsche Bank.
Earlier this month, Judge Chapman ruled that the 209,000 mortgages spread across the trusts must be analyzed individually rather than through statistical sampling, the method favored by the trustee group. The task could take up to 21 years to complete, according to CFO Magazine.
In February of this year, the holding company in charge of winding down the assets of Lehman Brothers settled a $1.2 billion claim with Freddie Mac. The original claim stemmed from two loans Freddie made to Lehman in the months before the financial crisis. Lehman was scheduled to pay the loan back on Sept. 15, 2008 – the day it filed for bankruptcy.