Where Repo And 'Customer’ Claims Differ Under SIPA

Judge James M. Peck of the Bankruptcy Court for the Southern District of New York held, on June 25, 2013 (the “Lehman Op.”), that claims under repurchase transactions (repos) do not qualify as customer claims and therefore are not entitled to the priority or coverage provided for customers’ claims under the Securities Investor Protection Act (SIPA).

The trustee overseeing the liquidation of Lehman Brothers Inc. (LBI) filed a motion seeking a bankruptcy court order confirming his determination that repo claims were not customer claims under SIPA. Three banks that acted as representatives of the numerous repo counterparties, opposed the trustee’s motion. The court upheld the trustee’s determination, holding that the claims were not customer claims because the transferred securities were never actually entrusted to LBI, distinguishing the primary case relied on by the banks.