2010-04-26 Lehman Hearing Transcript Amended

1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
Case No. 08-13555(JMP)
Adv. Case No. 08-01420(JMP)(SIPA)
- - - - - - - - - - - - - - - - - - - - -x
In the Matter of:
LEHMAN BROTHERS HOLDINGS INC., et al.,
Debtors.
- - - - - - - - - - - - - - - - - - - - -x
SECURITIES INVESTOR PROTECTION CORPORATION,
Plaintiff,
-against-
LEHMAN BROTHERS INC.,
Debtor.
- - - - - - - - - - - - - - - - - - - - -x
U.S. Bankruptcy Court
One Bowling Green
New York, New York
April 26, 2010
9:36 AM
B E F O R E:
HON. JAMES M. PECK
U.S. BANKRUPTCY JUDGE
TRIAL
VERITEXT REPORTING COMPANY

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1
2 HEARING re Motion by Barclays Capital Inc. for an Order
3 Compelling Documents from LBHI, the Trustee, the Creditors'
4 Committee and their Financial Advisors Deloitte, FTI, Alvarez &
5 Marsal, and Houlihan Lokey [Case No. 08-13555, Docket No. 8331]
6
7 HEARING re Statement of the Securities Investor Protection
8 Corporation in Support of Trustee's Motion for Relief Pursuant
9 to the Sale Orders or, Alternatively, For Certain Limited
10 Relief Under Rule 60(b) [Case No. 08-1420, Docket No. 2989]
11
12 HEARING re Objection of HWA 555 Owners, LLC to the Motions of
13 Lehman Brothers Holdings Inc., James W. Giddens as Trustee for
14 Lehman Brothers Inc., and the Official Committee of Unsecured
15 Creditors of Lehman Brothers Holdings Inc. to Modify the
16 September 20, 2008 Sale Order and for Other Relief [Case No.
17 08-13555, Docket No. 5419; Case No. 08-01420, Docket No. 1911]
18
19 HEARING re Objection of SunGard Entities to the Motion of the
20 Trustee for Relief Pursuant to Sale Orders or, Alternatively,
21 for Certain Limited Relief Under Rule 60(b) and Reservation of
22 Rights [Case No. 08-01420, Docket No. 1917]
23
24
25

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1
2 HEARING re Motion of Evergreen Solar, Inc. to Join to Motion of
3 Official Committee of Unsecured Creditors of Lehman Brothers
4 Holdings Inc. [Case No. 08-13555, Docket No. 5422; Case No. 08-
5 01420, Docket No. 1914]
6
7 HEARING re Statement of the Bank of New York Mellon Trust
8 Company in Support of the Motions for (I) an Order Modifying
9 the September 20, 2008 Sale Order and Granting Other Relief and
10 (II) to Unseal Motions for Relief from September 20, 2008 Sale
11 Order (and Related SIPA Sale Order) [Case No. 08-13555, Docket
12 No. 5424]
13
14 HEARING re Objection of SunGard Entities to (1) the Motion of
15 the Debtors for an Order Modifying the September 20, 2008 Sale
16 Order and Granting Other Relief and (2) the Motion of Official
17 Committee of Unsecured Creditors of Lehman Brothers Holdings
18 Inc. [Case No. 08-13555, Docket No. 5426]
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20
21
22
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25

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1
2 HEARING re Joint Statement And Reservation Of Rights Of The
3 Bank Of Tokyo-Mitsubishi UFJ, Ltd. And Lloyds TSB Bank, plc In
4 Connection With (I) Motions Of Lehman Brothers Holdings, Inc.,
5 The Official Committee Of Unsecured Creditors, And James W.
6 Giddens, As Trustee For Lehman Brothers, Inc., For Certain
7 Relief Pursuant To The September 20, 2008 Sale Orders; And (II)
8 Motion Of Barclays Capital Inc. To Enforce The Sale Orders And
9 Secure Delivery Of Undelivered Assets [Case No. 08-13555,
10 Docket No. 7165; Case No. 08-1420, Docket No. 2679]
11
12 HEARING re Australia & New Zealand Banking Group LTD's Letter
13 Regarding Rule 60 Proceedings [Adv. No. 08-1789, Docket No. 33]
14
15 HEARING re LibertyView's: (A) Joinder to (i) the SIPA Trustee's
16 Motion, (ii) the Committee's Motion, and (iii) LBHI's Motion
17 for Relief from the Sale Orders or, Alternatively, for Certain
18 Limited Relief Under Rule 60(b); and (B) Objection to Barclays
19 Capital Inc.'s Motion to Enforce the Sale Order [Case No. 08-
20 13555, Docket No. 7417; Case No. 08-01420, Docket No. 2775]
21
22
23
24
25

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1 HEARING re Joinder of Newport Global Opportunities to
2 LibertyView's: (A) Joinder to (I) the Trustees' Motion, (II)
3 the Committee's Motion and (III) LBHI's Motion for Relief from
4 the Sale Orders or, Alternatively, for Certain Limited Relief
5 Under Rule 60(b); and (B) Objection to Barclays Capital Inc.'s
6 Motion to Enforce the Sale Order [Case No. 08-13555, Docket No.
7 7419; Case No. 08-01420, Docket No. 2778]
8
9 HEARING re Motion of Debtor to Modify the September 20, 2008
10 Sale Order and Granting Other Relief [Case No. 08-13555, Docket
11 No. 5148]
12
13 HEARING re Motion of the Trustee for Relief Pursuant to the
14 Sale Orders or, Alternatively, for Certain Limited Relief Under
15 Rule 60(b) [Case No. 08-01420, Docket No. 1682]
16
17 HEARING re Motion of Official Committee of Unsecured Creditors
18 of Lehman Brothers Holdings Inc., Authorizing and Approving (A)
19 Sale of Purchased Assets Free and Clear of Liens and Other
20 Interests and (B) Assumption and Assignment of Executory
21 Contracts and Unexpired Leases, Dated September 20, 2008 (and
22 Related SIPA Sale Order) and Joinder in Debtors and SIPA
23 Trustees' Motions for an Order Under Rule 60(b) to Modify Sale
24 Order [Case No. 08-13555, Docket No. 5169; Case No. 08-01420,
25 Docket No. 1686]

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1
2 HEARING re Motion of Barclays Capital Inc. to Enforce the Sale
3 Order and Secure Delivery of All Undelivered Assets [Case No.
4 08-13555, Docket No. 6814; Case No. 08- 1420, Docket No. 2581]
5
6 HEARING re Trustee's Adversary Complaint [Adv. No. 09-01732,
7 Docket No. 1]
8
9 HEARING re LBHI's Adversary Complaint [Adv. No. 09-01731,
10 Docket No. 1]
11
12 HEARING re Creditors' Committee Complaint for Declaratory
13 Relief Pursuant to 11 U.S.C. Section 105(a) and 28 U.S.C.
14 Sections 2201, 2202 and for an Accounting [Adv. No. 09-01733,
15 Docket No. 1]
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21
22
23
24 Transcribed by: Clara Rubin
25

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1
2 A P P E A R A N C E S :
3 JONES DAY
4 Special Counsel for the Debtors
5 222 East 41st Street
6 New York, NY 10017
7
8 BY: ROBERT W. GAFFEY, ESQ.
9 WILLIAM J. HINE, ESQ.
10
11 BOIES, SCHILLER & FLEXNER LLP
12 Attorneys for Barclays Capital, Inc.
13 5301 Wisconsin Avenue, N.W.
14 Washington, DC 20015
15
16 BY: HAMISH P.M. HUME, ESQ.
17 JONATHAN D. SCHILLER, ESQ.
18
21 10 North Pearl Street
22 4th Floor
23 Albany, NY 12207
24
25 BY: TRICIA J. BLOOMER, ESQ.

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1
4 401 East Las Olas Boulevard
5 Suite 1200
6 Fort Lauderdale, FL 33301
7
8 BY: TODD THOMAS, ESQ.
9
10
11 BROWN RUDNICK LLP
12 Attorneys for Newport/Providence Funds
13 Seven Times Square
15
16 BY: HOWARD S. STEEL, ESQ.
17
18
19 EMMET, MARVIN & MARTIN, LLP
20 Attorneys for Australia and New Zealand Banking Group
21 Limited
22 120 Broadway
24
25 BY: KENNETH M. BIALO, ESQ.

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1
2 GOODWIN PROCTER LLP
3 Attorneys for Evergreen Solar Inc.
4 The New York Times Building
5 620 Eighth Avenue
7
8 BY: K. BRENT TOMER, ESQ.
9
10
11 HUGHES HUBBARD & REED LLP
12 Attorneys for the James W. Giddens, SIPA Trustee
13 One Battery Park Plaza
15
16 BY: WILLIAM R. MAGUIRE, ESQ.
17
18
19 KASOWITZ BENSON TORRES & FRIEDMAN LLP
20 Attorneys for Lloyds TSB Bank
21 1633 Broadway
23
24 BY: JONATHAN E. MINSKER, ESQ.
25

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1
2 LOWENSTEIN SANDLER PC
3 Attorneys for LibertyView Funds
4 65 Livingston Avenue
5 Roseland, NJ 07068
6
7 BY: MICHAEL S. ETKIN, ESQ.
8
9 OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C.
10 Attorneys for Bank of Tokyo-Mitsubishi UFJ, Ltd.
11 230 Park Avenue
12 New York, NY 10169-0075
13
14 BY: JOHN BOUGIAMAS, ESQ.
15
16 QUINN EMMANUEL URQUHART OLIVER & HEDGES, LLP
17 Special Counsel to the Official Committee of Unsecured
18 Creditors
19 51 Madison Avenue
20 22nd Floor
22
23 BY: SUSHEEL KIRPALANI, ESQ.
24 JAMES C. TECCE, ESQ.
25

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1
2 QUINN EMMANUEL URQUHART OLIVER & HEDGES, LLP
3 Special Counsel to the Official Committee of Unsecured
4 Creditors
5 865 S. Figueroa St., 10th Floor
6 Los Angeles, CA 90017
7
8 BY: ERICA P. TAGGART, ESQ.
9
10
11 SECURITIES INVESTOR PROTECTION CORPORATION
12 805 15th Street, N.W.
13 Suite 800
14 Washington, DC 20005
15
16 BY: KENNETH J. CAPUTO, ESQ.
17
18
19 CHAPMAN & CUTLER
20 Attorneys for Creditor, US Bank
21 111 West Monroe Street
22 Chicago, IL 60603
23
24 BY: JAMES HEISER, ESQ. (TELEPHONICALLY)
25 FRANKLIN H. TOP III, ESQ. (TELEPHONICALLY)

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1
2 STUTMAN TREISTER & GLATT
3 Attorneys for Interested Party, Elliott Company
4 1901 Avenue of the Stars, 12th Floor
5 Los Angeles, CA 90067
6
7 BY: WHITMAN L. HOLT, ESQ. (TELEPHONICALLY)
8 REBECCA S. REVICH, ESQ. (TELEPHONICALLY)
9
10
11 AURELIUS CAPITAL MANAGEMENT
12 Interested Party
13 BY: DAVID TIOMKIN (TELEPHONICALLY)
14
15
16 BANK OF AMERICA
17 Creditor
18 BY: NATALIE FOY (TELEPHONICALLY)
19
20
21 FARALLON CAPITAL MANAGEMENT
22 Creditor
23 BY: ANATOLY BUSHLER (TELEPHONICALLY)
24
25

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1
2 MORGAN STANLEY
3 BY: JOHN O'MEARA, IN PROPRIA PERSONA (TELEPHONICALLY)
4
5
6 VARDE PARTNERS
7 Creditor
8 BY: SCOTT HARTMAN (TELEPHONICALLY)
9
10
11
12
13
14
15
16
17
18
19
20
21
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1 P R O C E E D I N G S
2 THE COURT: Please be seated. Good morning. I think
3 we have certain parties who have filed papers in support of or
4 in opposition to the pending 60(b) relief. It's not clear to
5 me whether or not we're going to start with those or where
6 those are going to fit into the morning's activities.
7 MR. GAFFEY: Robert Gaffey, Your Honor, special
8 counsel for the debtor.
9 On the agenda that was filed --
10 THE COURT: Oh, I wasn't looking at the agenda --
11 MR. GAFFEY: Oh, I beg your pardon, Your Honor.
12 THE COURT: -- which is one of the reasons I don't
13 know.
14 MR. GAFFEY: Oh. Then I'm not sure if you were
15 inviting any comment from me, Judge. It struck us that it's
16 probably better to get that out of the way first, at least from
17 our point of view. And then --
18 THE COURT: That works.
19 MR. GAFFEY: -- there may one or two housekeeping
20 matters relating to the hearing.
21 THE COURT: And then go to the discovery motion?
22 MR. GAFFEY: Yes.
23 THE COURT: Is that acceptable to Barclays?
24 UNIDENTIFIED SPEAKER: Yes, Your Honor.
25 THE COURT: Why don't we do that, then?

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1 MR. CAPUTO: Your Honor, Kenneth Caputo on behalf of
2 the Securities Investor Protection Corporation. The Court has
3 a very full docket today, so with that in mind, may it please
4 the Court; I will be brief.
5 SIPC has already submitted a pretrial statement in
6 this case, and that statement makes clear SIPC's position that
7 in order to properly effect and provide true investor
8 protection in this case, as was intended from the commencement
9 of the liquidation proceeding, it is required as a matter of
10 law that property marshaled by the SIPA trustee, including the
11 disputed assets, be made available first and foremost to
12 customers and that none of the disputed assets can be delivered
13 to or left with Barclays unless and until all customers have
14 been fully satisfied.
15 Barclays' motion to secure delivery of all undelivered
16 assets runs counter to the applicable provisions of the
17 financial responsibility rules and SIPA. SIPC respectfully
18 submits, Your Honor, that the trustee's motion for relief has
19 sound footing in, and should be granted as a matter of, law,
20 and that this Court should put investor protection ahead of
21 Barclays' further commercial profit. Thank you, Your Honor.
22 THE COURT: Thank you.
23 Next on the list is HWA 555 Owners, LLC. Are they
24 here?
25 (No response)

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1 THE COURT: I assume they're resting on their papers.
2 SunGard?
3 (No response)
4 THE COURT: Evergreen Solar?
5 MR. TOMER: Good morning, Your Honor. Brent Tomer
6 from Goodwin Procter, on behalf of Evergreen Solar, Inc.
7 We have a pending adversary proceeding alleging that
8 LBI improperly transferred shares of Evergreen Solar to
9 Barclays under the guise of the repo agreement. Despite the
10 fact that those shares were merely lent to LB -- or, I'm sorry,
11 merely lent to Lehman Brothers International Europe and that
12 LBI merely held their shares as agent for LBIE, we believe
13 those -- our claims should be dealt with in the context of the
14 adversary proceeding.
15 But we've come here today because these proceedings do
16 implicate, and may perhaps validate, the claims we've made with
17 respect to the manner in which the sale was conducted outside
18 of the public view, and perhaps outside of this Court's view as
19 well. Barclays has argued along the way that the sale order
20 bars our claims and that we've waived our claims by failing to
21 object at the sale hearing.
22 Well, now, while we've had no notice of the sale
23 hearing, we did have notice of these proceedings here today,
24 and so we merely stand to preserve our claims on the record.
25 That's it. Thank you, Your Honor.

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1 THE COURT: Okay. Thank you.
2 There's a statement by Bank of New York Mellon. I
3 assume they rely on their papers.
4 (No response)
5 THE COURT: There's another objection of SunGard.
6 Joint statement and reservation of rights of Bank of
7 Tokyo-Mitsubishi?
8 MR. BOUGIAMAS: Good morning, Your Honor. John
9 Bougiamas, Otterbourg, Stone, Houston & Rosen, on behalf of the
10 Bank of Tokyo-Mitsubishi UFJ, Ltd.
11 Bank of Tokyo-Mitsubishi is an interpleader defendant
12 in a case filed by the OCC concerning the disposition of eighty
13 million dollars of letter-of-credit proceeds drawn by the OCC
14 on the day LBI's SIPA liquidation was filed. Issue was joined
15 in the interpleader in February 2009. The letter-of-credit
16 proceeds themselves are on deposit with the Court, pursuant to
17 stipulation and order, so ordered by Your Honor.
18 As we -- we recognize that the Court may issue certain
19 rulings that may impact BTMU's -- Bank of Tokyo's claims in
20 that interpleader action, including rulings that may be
21 construed to order delivery of the letter-of-credit proceeds to
22 Barclays or the LBI trustee in this action. We request that,
23 to the extent the Court issues any such rulings, the Court
24 order that Barclays or LBI trustee take such proceeds, subject
25 to whatever rights and claims that the Bank of Tokyo and the

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1 other interpleader defendant banks have to those proceeds and
2 for reimbursement, as we may establish in the separate
3 adversary proceeding.
4 MR. MINSKER: Good morning, Your Honor. Jonathan
5 Minsker, Lloyds TSB Bank.
6 I just wanted to point out one thing that might not be
7 clear in the papers that were filed. We joined in the joint
8 statement filed by Bank of Tokyo-Mitsubishi and want to point
9 out that we don't take a position on the ultimate disposition
10 on the Rule 60 motions. However, there is one argument that
11 Barclays makes in its papers in this proceeding, and that's at
12 page 187, footnote 164.
13 THE COURT: You've read them very carefully, it's
14 obvious.
15 MR. MINSKER: Well, that footnote in particular, yes,
16 Your Honor.
17 Barclays claims that it is entitled to not only the
18 OCC margin but claims that the letter-of-credit proceeds, and
19 this is eighty million dollars withdrawn to have been deposited
20 in the court registry, are specifically part of that OCC
21 margin. Even though the letters of credit were drawn by the
22 OCC on the petition date, there were no amounts outstanding on
23 the LBI obligations under the accounts, but the OCC drew these
24 proceeds in the interest of protecting the public under an OCC
25 rule that allows it to do so. That money was held in a

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1 suspense account. Barclays nonetheless asserts that that money
2 is now part of the OCC margin that belongs to it.
3 So if Your Honor rules in this proceeding that
4 Barclays takes not only the OCC margin but the specific letter-
5 of-credit proceeds, then Lloyds requests that Your Honor also
6 rule that Barclays also takes the concomitant reimbursement
7 obligation pursuant to both the transfer and assumption
8 agreement, which states that Barclays not only would take the
9 OCC margin but the repayment obligation and pursuant to equity,
10 because Barclays should not be able to get the benefit of the
11 eighty million dollars without paying back the issuing banks.
12 If Your Honor rules that Barclays is not entitled to
13 the OCC margin or is entitled to the OCC margin but Your Honor
14 disagrees with footnote 164 and believes that the LC proceeds,
15 which are cash in the suspense account, didn't go to Barclays,
16 then the issue of whether the OCC needs to pay that back to
17 Lloyds can be resolved in the interpleader action. In either
18 case, your ruling here can significantly either eliminate or
19 reduce what is to be litigated in that action. Thank you, Your
20 Honor.
22 Australia and New Zealand Banking Group?
23 MR. BIALO: Good morning, Your Honor. I'm Ken Bialo,
24 and I represent the Australia and New Zealand Banking Group
25 Limited. We are also a defendant in the interpleader case

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1 brought by OCC. And of the eighty million dollars in proceeds
2 that's on deposit with the Court, twenty million and change are
3 ours.
4 I would just like to point out to the Court that, with
5 respect to our submission of February 18th of this year in
6 which we stated our position, and we were hoping to preserve
7 all of our rights for litigation in the OCC interpleader case,
8 there has not been, as far as I can tell, any disagreement with
9 the notion that the issues in the interpleader case are in fact
10 unique and discrete, and no disagreement, as far as I can tell,
11 with the idea that discovery in that proceeding should take
12 place after the conclusion of these proceedings. I think,
13 amongst counsel, we had circulated the idea of about 120 days.
14 And that's all I have to say this morning, Your Honor.
15 I know that you have a busy morning.
16 THE COURT: Fine. Since this is not a pretrial
17 conference in that adversary proceeding, I'm not making any
18 comment one way or the other about your stipulation. And feel
19 free to live by it whether or not I've approved it.
20 MR. BIALO: It wasn't a formal stipulation, Your
21 Honor; it was an exchange of ideas.
22 THE COURT: An understanding. Okay.
23 MR. BIALO: Thank you, Your Honor.
24 THE COURT: LibertyView?
25 MR. ETKIN: Good morning, Your Honor. Michael Etkin,

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1 Lowenstein Sandler.
2 Again, very briefly, LibertyView is a group of
3 investment funds that was a party to prime brokerage agreements
4 with Lehman Brothers Inc. We were not among those accounts
5 that were transferred to Barclays, and we believe we are among
6 those customers that Mr. Caputo so eloquently indicated require
7 the protection of this Court.
8 And our concern is raised in our joinder; it relates
9 to the transfer of customer property to Barclays -- the
10 potential transfer of customer property to Barclays that is
11 part of the fund of customer property that should be there to
12 satisfy the claims of customer claimants such as us.
13 Specifically, Your Honor, in going through the mounds
14 of material that were filed, the one thing that struck us,
15 which makes this proceeding so significant and the issues for
16 the Court so significant, was some documents that were
17 previously filed under seal but that were revealed for the
18 first time only recently in the various filings, one of which,
19 which was Barclays' Exhibit 521, set forth a list of assets
20 that were transferred with CUSIP numbers. Interestingly
21 enough, Your Honor, those assets, Alliance One International,
22 Charter Communications Operating, Delta Airlines Inc. bonds,
23 all had identical CUSIP numbers to those CUSIP numbers that
24 were on the securities that belong to my client. So that
25 obviously put the issue squarely in front of us when we were

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1 able to read that and, thus, we filed our joinder in the relief
2 requested by the trustee, the committee and the debtor.
3 THE COURT: All right. Thank you.
4 Newport Global Opportunities?
5 MR. STEEL: Good morning, Your Honor. Howard Steel of
6 Brown Rudnick, on behalf of Newport/Providence funds.
7 We're in the same boat as LibertyView and join their
8 response. Newport opened a prime brokerage account with LBI
9 pursuant to a prime brokerage agreement. Newport entrusts its
10 securities to LBI and, pre-commencement, requested that those
11 securities be transferred to a third-party prime brokerage.
12 This transfer did not occur. We filed timely customer claims.
13 The LBI trustee has denied our customer claims.
14 But similar to LibertyView, we still don't have
15 definitive conclusions on where our securities are, who has
16 them, why aren't they being returned to us. This is the third
17 calendar year and we're still in limbo, and Newport is
18 suffocating because of the delay in the return of their
19 securities.
20 In connection with this proceeding, Newport just
21 requested the trustee and this Court put a spotlight on the
22 sale transaction so prime brokerage claimants, about six
23 billion strong, aren't further aggrieved as they wait for the
24 return of their property. Thank you.
25 THE COURT: Are you speaking on behalf of Newport or

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1 are you speaking on behalf of a class of similarly affected
2 prime brokerage customers?
3 MR. STEEL: Today I'm speaking on behalf of the
4 Newport/Providence group of funds, but, as Your Honor is aware,
5 there is an ad hoc group, including LibertyView, of other
6 similarly situated prime brokerage claimants.
7 THE COURT: Okay, and so your final remark was on
8 behalf of your Greek chorus friends, is that right?
9 MR. STEEL: Yes.
10 THE COURT: Okay. Got it.
11 MR. STEEL: Thank you.
12 THE COURT: Is there anyone else who wishes to be
13 heard on this? I've gone through the list of third parties who
14 have submitted papers. This isn't a general invitation to the
15 audience to speak, but just wanted to see if I left anybody
16 out.
17 (No response)
18 THE COURT: All right, fine. Why don't we proceed
19 with the discovery matters.
20 MR. HUME: Good morning, Your Honor. Thank you.
21 Hamish Hume from Boies Schiller, for Barclays.
22 Your Honor, I have a very small number of
23 demonstratives that I might use in the argument, if I may.
24 They're being handed out to proposing counsel. May I approach?
25 THE COURT: You may.

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1 Thank you.
2 MR. HUME: And if I could have A-1 on the screen,
3 please.
4 Your Honor, we're here on this motion to compel
5 production from the movants and their financial advisors of
6 their economic analyses of the sale transaction at the time of
7 the sale transaction and through to March 13th, 2009. And our
8 discovery request, which we issued right after the Rule 60
9 motions were filed, used that cutoff because that was the date
10 the district court issued its decision affirming the sale
11 orders on appeal.
12 And we've asked, therefore, during that period of time
13 when the movants were supporting the sale and defending the
14 sale and the sale orders on appeal -- we wanted to know what
15 they understood about the economics of the sale transaction
16 during that time, because -- and the reason for that, Your
17 Honor, is that they are now, obviously, asking this Court to
18 modify the terms of the sale order and of the purchase
19 agreement that they asked the Court to approve, they expressly
20 agreed to, they chose not to seek reconsideration of, and they
21 defended on appeal, which they actually did through to June
22 19th when the Second Circuit finally dismissed the appeal.
23 Your Honor, as a matter of law, for them to seek that
24 extraordinary relief under Rule 60, their claims must as a
25 matter of law require them to show that they simply did not

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1 understand the economic terms of the sale. And that's what
2 they say. They didn't say it explicitly in their opening
3 brief, but they did say it explicitly in their reply brief,
4 because they have to, and it's not because we forced them to;
5 it's because the law forces them to. They must show, for their
6 Rule 60(b)(2) claims, that they simply did not understand the
7 terms of the sale. It's both that they subjectively didn't
8 understand it and that they objectively could not have
9 understood it. They have to clear both hurdles.
10 Now, it's especially hard for us to understand, Your
11 Honor, how they can clear those hurdles given what was publicly
12 announced and known about the sale at the time. And I don't
13 want to depart too much from this, but I would like to show
14 Your Honor what we showed you two weeks ago --
15 And show slide 49, please.
16 -- from our defensive binder, our argument binder,
17 from April 9th.
18 Two days before the sale was presented for approval,
19 Barclays publicly announced its expectation that the sale
20 transaction would result in an accounting gain of approximately
21 two billion dollars. This was told to an investor
22 teleconference that was open to the public. The public was
23 invited to it through a press release, and it was noticed in
24 the press.
25 And if I could have the next slide, slide 50, please.

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1 In the same public press announcement, Barclays
2 described the sale as involving an acquisition of 72 billion
3 dollars of trading assets, for trading liabilities of 68
4 billion dollars, for a cash consideration of 250 million
5 dollars.
6 Now may I have, please, the Sunday Times article?
7 This description of the sale was noticed in all of the
8 newspapers and publicized at the time.
9 Could you blow up, please, that paragraph and the one
10 below it? There we go.
11 The middle paragraph says "Mr. Diamond revealed" --
12 this is before the sale was presented for approval.
13 Sorry, the first paragraph.
14 "Barclays will spend 250 million dollars on Lehman's
15 U.S. trading assets worth 72 billion dollars and at 68 billion
16 dollars of trading liabilities." That spread between trading
17 assets and trading liabilities was public, was discussed, was
18 open for everyone to see, and no other bidder came forward to
19 offer a better deal.
20 Could I have The Wall Street Journal article, please?
21 And can you blow up again the paragraph --
22 In The Wall Street Journal it was reported that the
23 price tag for what was roughly half the entire company appears
24 to value the business at a tiny fraction of what it would have
25 fetched eighteen months ago. After subtracting the 1.5 billion

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1 Barclays said it will pay for the Lehman headquarters, the U.K.
2 bank is paying just 250 million dollars for the business, and
3 its trading assets of 72 billion dollars, and liabilities of 68
4 billion dollars.
5 So, Your Honor, there was a lot of public attention on
6 this deal at the time. There was a lot of description at the
7 time about how favorable it was to Barclays. There were also,
8 I'll note, in many of these articles notes from people who said
9 they thought it was a very risky deal for Barclays and
10 expressed skepticism. But, clearly, there was public notice
11 about how Barclays expected to record an accounting gain from
12 the deal. And yet the movants are here a year later saying the
13 deal was supposed to be a wash, supposed to be a wash,
14 everything was supposed to balance perfectly. It doesn't
15 balance perfectly in what was publicly said at the time.
16 So for them to bring these claims and ask you to
17 modify the sale order that went up on appeal and was defended
18 at their -- with their explicit support all the way through to
19 June, they must be saying that they were profoundly confused
20 about what the sale was all about. They must be saying that
21 they did not understand it. As a matter of law, they have to
22 be saying that. And yet they all --
23 If I may have slide A-2.
24 -- they, all three of the movants --
25 A-2.

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1 -- had world-class financial advisors advising them at
2 the time: Deloitte & Touche advising the trustee, FTI
3 consultant and Houlihan Lokey advising the creditors'
4 committee, Alvarez & Marsal advising LBHI.
5 So we asked as soon as we got their Rule 60 motions
6 Please produce what you thought the values were of the
7 purchased assets and the assumed liabilities so that we can
8 understand how it is that you can be saying that there's new
9 evidence. And they refused. They've refused to produce to us
10 what their financial advisors understood and thought about the
11 sale at the time.
12 Now, I hasten to add that we would acknowledge there
13 was tremendous uncertainty about the values of both the assets
14 and the liabilities, and we expected if we got these financial
15 analyses it would show that; it would show that they recognized
16 the uncertainty and they accepted that uncertainty, and they
17 defended the sale transaction with that acknowledged
18 uncertainty. And now they've come back and asked you to redo
19 everything because basically the markets have stabilized and
20 they think that they would like to get a better deal.
21 THE COURT: Let me ask you question about Deloitte &
22 Touche for a moment, which is the first firm listed in red on
23 that slide. The papers filed by the SIPA trustee indicate that
24 discovery was taken and, assuming the credibility of the
25 information revealed in discovery, Deloitte did no work with

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1 respect to valuation of the deal. And you know that. So I'm
2 just focusing on this. How can you be making a last-minute
3 motion -- this is the first day of the evidentiary hearing of
4 the trial; it couldn't be more last-minute -- seeking discovery
5 of an enterprise such as Deloitte, that you acknowledge is
6 world-class, and I'm sure they're very pleased to hear that on
7 the public record, but that acknowledges having done none of
8 the work that you're seeking to find out about? Why are they
9 even on the list?
10 MR. HUME: Your Honor, you've asked two questions; let
11 me try to answer them both. Deloitte & Touche you've singled
12 out; to me, they are the hardest for the movants to defend
13 withholding what they did. They did do analyses, wholly
14 unrelated to litigation, because they were tasked immediately
15 with preparing an opening balance sheet for the SIPA
16 liquidation as of September 19th, before the sale closed. They
17 were asked immediately to prepare an opening balance sheet,
18 what were the assets and liabilities that LBI had when it came
19 into court for the SIPA liquidation, and to do that they have
20 to value the assets.
21 And I would like to show you, Your Honor, in response
22 to your question, the evidence for that, because I don't
23 understand this argument that they did no work.
24 If I may have, please, first, the 30(b)(6) clip from
25 James Kobak on the Deloitte and opening balance sheet question?

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1 This is --
2 (Begin playback of clip)
3 "Q. One of Deloitte & Touche's tasks is to create a balance
4 sheet for LBI as of the start of the SIPA liquidation, is that
5 correct?
6 "A. We asked them to do that at some point.
7 "Q. And they have not yet completed that, correct?
8 "A. That's correct."
9 (End playback of clip)
10 MR. HUME: And now, Your Honor, the 30(b)(6)
11 representative from Deloitte who was asked about their work on
12 that opening balance sheet:
13 (Begin playback of clip)
14 "Q. Did Deloitte at any time attempt to value any of the
15 assets listed under the purchased assets?
16 "A. The only time we attempted to value -- or, sorry, we did
17 not attempt to value anything related to this listing.
18 "Q. Can I ask -- well, it seems like you were clarifying your
19 language. Was there something you were going to say before
20 that?
21 "A. We had been in process of creating a draft balance sheet,
22 but Deloitte hasn't been doing the valuations.
23 "Q. Who was, then, doing the valuations for the draft balance
24 sheet?
25 "A. The valuations have been coming from third-party sources

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1 and Barclays.
2 "Q. What were the third-party sources?
3 "A. They're publicly available sources. The two that I
4 remember are Bloomberg and IBSI.
5 "Q. Is that work still going on?
6 "A. Yes.
7 "Q. When did Deloitte first work on in any way a balance sheet
8 for LBI?
9 "A. Started in late '08. We did not have access to the books
10 and records until around that time to be able to get the
11 details to start creating a balance sheet.
12 "Q. What was the purpose of creating a balance sheet?
13 "A. To determine what assets and liabilities existed as of
14 9/19/08, the date of liquidation.
15 "Q. And Deloitte is still working on that balance sheet today?
16 "A. Yeah."
17 (End playback of clip)
18 MR. HUME: Your Honor, so if they're trying to put
19 together a balance sheet for the broker-dealer as of the date
20 of the liquidation, that is going to show the values of the
21 assets and liabilities; it's going to show whether they're
22 doing it themselves or relying on other people. And I did ask
23 the trustee's 30(b)(6) (sic) in deposition are these assets
24 difficult to value, since it's taken a year, or more now, to
25 actually produce this opening balance sheet. And he said yes,

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1 I think some of them are very difficult to value. And if
2 they're accepting Barclays' valuations, that undercuts the
3 arguments of the other movants.
4 We're entitled to know what they thought that balance
5 sheet looked like, what they thought we were getting from that
6 balance sheet at the time. It's directly relevant to our
7 claims. It's not work product. It's work they would be doing
8 if -- wholly independent of this litigation and which, I assume
9 in good faith, no one was thinking about at that time, since,
10 if they were, then it wouldn't be new evidence; they would have
11 had that evidence.
12 Now, Your Honor asked a second question, which is why
13 is -- why are we bringing this at this time; is it -- and how
14 do we explain what Your Honor called the last-minute nature of
15 it.
16 Your Honor, we did bring a motion, as you'll recall,
17 after the Rule 60 motions were filed, seeking a broad --
18 arguing that there had been a broad waiver of both attorney-
19 client privilege and attorney work product.
20 And if I may have slide A-8.
21 In response to that motion, the movants argued that
22 all of their claims were objective, based on objective
23 evidence, what was told to the Court; nothing to do with what
24 they knew. And they made all these arguments in their
25 opposition then, and they made it in their oppositions to our

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1 second motion to compel. And Your Honor accepted those
2 arguments on page -- I think it's 116 to -17 of the December
3 16th transcript. When you read your opinion denying our
4 motion, you said "I view these claims as objective," as based
5 upon what was told to the Court, nothing to do with what the
6 movants knew.
7 And, Your Honor, we respectfully disagreed with that,
8 but we, obviously, respected the Court's decision. And we made
9 our arguments in our brief to explain why legally there is no
10 way they can bring the claims they're bringing without showing
11 their own subjective lack of understanding of the terms of this
12 deal.
13 Judge Peck, there's no case that has ever allowed a
14 Rule 60(b) modification of a sale order that was affirmed on
15 appeal. There are virtually none that have had any 60(b)
16 modification of the sale order; none after an appeal. They
17 argue new evidence under 60(b)(2), a required element of which
18 is that they subjectively did not understand the terms of the
19 sale.
20 Because there's a -- so that's one reason they must
21 show they didn't understand. There's also a mandate from the
22 district court, which is a jurisdictional mandate. The sale
23 order has been affirmed. There's arguably no exception to that
24 mandate, but any such exception must again rely on their
25 ability to show they didn't understand the sale they were

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1 defending before the district court.
2 So we must know, therefore -- they must show that they
3 didn't understand the terms of the deal. And they argue in
4 their reply brief --
5 If I may have the next slide, A-9.
6 -- that they didn't, because, knowing that they have
7 to make this argument, they say repeatedly the committee was
8 justifiably ignorant; LBHI was justifiably ignorant; there was
9 not enough time for LBHI to analyze the information it had;
10 they did not understand what they were saying in the October
11 2008 meeting; they did not develop a meaningful understanding
12 of the sale transaction until after the 2004 discovery. Your
13 Honor, we don't think those assertions are credible, and those
14 assertions placed directly at issue what they truly did
15 understand at the time and what their financial advisors
16 understood at the time.
17 And so we have asked in discovery what did those
18 financial advisors understand at the time. And if the Court
19 will indulge me, I know that last clip went on a little long,
20 but we have some shorter clips of the questions we've asked in
21 discovery that we have not been able to get answers to. And
22 I'd like to begin with the most recent deposition we took of
23 Mr. Despins -- I think I'm pronouncing his name correctly --
24 from Milbank, the lead lawyer for the creditors' committee.
25 May we show his deposition excerpt?

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1 (Begin playback of video clip)
2 "Q. And this will be your e-mail, October 13, 2000 at
3 3:47 p.m. In this e-mail you say 'Houlihan has reviewed the
4 securities and cannot even come close to the amount which was
5 announced in court.' What amount had Houlihan provided that --
6 in its review?
7 "UNIDENTIFIED SPEAKER: Stop.
8 "I'm going to instruct the witness not to answer the
9 question.
10 "Q. Okay. You write 'Houlihan's review would indicate that
11 the securities transferred could be worth billions more than
12 the 47.7 billion.' Do you see where you wrote that?
13 "A. Yes.
14 "Q. Okay. How many billions more?
15 "UNIDENTIFIED SPEAKER: Objection. I'm going to
16 instruct him not to answer.
17 "Q. I'm just trying to help the Court see what the committee
18 saw at the time.
19 "A. I understand.
20 "Q. And the committee saw a statement from Goldman Sachs
21 saying that Barclays would receive a windfall discount of at
22 least several billion dollars. And my quest --
23 "A. I see that e-mail.
24 "Q. You see that in the e-mail?
25 "A. Yes.

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1 "Q. My question is whether Houlihan or anyone acting on behalf
2 of the committee concluded that that was an incorrect analysis.
3 "UNIDENTIFIED SPEAKER: Again, objection. I instruct
4 the witness not to answer."
5 (End playback of video clip)
6 MR. HUME: Your Honor, we would like to show you also
7 what Michael Fazio, one of the Houlihan valuation people --
8 now, not a lawyer, nothing to do with attorney-client
9 communications -- what he said when we asked directly about
10 Houlihan's effort to value the securities in the deal, or
11 what -- more accurately, what he was not allowed to say.
13 "Q. You see that Mr. Despins says that Houlihan has reviewed
14 that and cannot even come close to the amount which was
15 announced in court. What analysis had Houlihan done that led
16 Mr. Despins to make that comment?
17 "UNIDENTIFIED SPEAKER: I'm going to object and
18 instruct not to answer on attorney-client and work product
19 privilege.
20 "Q. What figure for market value had Houlihan arrived at as a
21 result of its analysis?
23 instruct not to answer on privilege.
24 "Q. Mr. Despins writes, 'Houlihan's review would indicate that
25 the securities transfer could be worth billions more than the

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1 47.7 billion.' Do you see that?
2 "A. Yes, I do.
3 "Q. Okay. But do you recall how many billions more Houlihan's
4 review indicated at the time?
5 "UNIDENTIFIED SPEAKER: Objection and an instruction
6 not to answer on attorney-client and work product privileges.
7 "Q. And at that point in time after closing, did Houlihan do
8 anything to access publicly available information, from
9 Bloomberg or other sources, concerning the value of the
10 securities on the lists that you had at that time?
12 instruct not to answer on privilege."
14 MR. HUME: Since we're taking some time with this, can
15 we skip the next one and just show, finally, what Saul Burian,
16 the 30(b)(6) representative from Houlihan Lokey, showed -- was
17 asked and not allowed to answer?
19 "Q. In the time period between September 22, 2008 and the end
20 of September, did you identify anything on the face of the
21 agreements, marked as Exhibit 26, that was inconsistent with
22 what you understood the Court had been told at the approval
23 hearing?
24 "UNIDENTIFIED SPEAKER: A set of objections: form;
25 asked and answered. To the extent, though, that you're asking

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1 for any of his analysis after the closing that was not
2 communicated to someone outside Houlihan and the committee, I'm
3 going to object on work product and instruct not to answer.
4 "Q. Did Houlihan compare the Schedule A attached to 460-B, to
5 the Schedule A it previously received, as reflected in 461-B?
6 "UNIDENTIFIED SPEAKER: When?
7 "Wait. Don't answer that.
8 "When? Are you saying at any time? I need to know
9 for my privilege objection.
10 "Q. Did Houlihan compare the Schedule A in 460-B and the
11 Schedule A in 461-B at any time after Houlihan received 460-B?
12 "UNIDENTIFIED SPEAKER: I'm going to object on work
13 product grounds and instruct you not to answer as to the
14 internal analysis that Houlihan did of the schedules."
16 MR. HUME: Your Honor, let me show you what the
17 schedules are.
18 May I have slide 28 from our April 9th argument
19 binder?
20 Your Honor, you've been told repeatedly in this
21 proceeding that there was a secret five billion dollar
22 discount. You've been told by the movants that the secret five
23 billion dollar discount was in the repo collateral that
24 Barclays received when it took over the New York Fed's repo.
25 This is a summary of what we were supposed to get. It

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1 didn't happen because we had a problem with the seven billion
2 dollar cash item that had to be resolved in the settlement
3 before Your Honor in December, but this is what Weil Gotshal
4 was told had been delivered in the repo to Barclays before the
5 closing: 49.9 billion. Those were the marks from the
6 custodian banks, JPMorgan -- basically Lehman's marks -- sent
7 to Weil Gotshal.
8 Slide 29, please.
9 And I should say these are the summaries. As the
10 demonstrative tries to show, there are hundreds of pages behind
11 that with individual CUSIP listings, all of the CUSIPS listed
12 and their values and their marks -- their values may be
13 something quite different -- sent to the committee before the
14 closing on September 21st.
15 They have the schedules; they knew the assets. If
16 they thought there was a secret five billion dollar discount,
17 Houlihan Lokey could review it and value it themselves. If
18 they thought it was possible to value those securities and get
19 a definite value and know a hundred percent it's XYZ.315, some
20 exact number, they could have done it. They knew it wasn't
21 possible, because forty percent of the CUSIPs on that list,
22 representing at least twenty-five percent of the value, were
23 nontraded assets, private-label securities, structured
24 financial products, CDOs, CMOs, asset-backed securities, the
25 securities that gave rise to the financial crisis in the first

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1 place. That was a quarter of that value. And Barclays looked
2 at it and said we don't think it's worth what it's marked at,
3 we think it's less, can we give you a precise number? No, but
4 it's worth less. And they bargained over it and they
5 negotiated all weekend, and they agreed it was less. Fine.
6 But the rock-bottom line is Houlihan had the schedule;
7 Weil Gotshal had the schedule. All these financial advisors
8 had the schedule. If they felt it was valued something
9 different than what the Court was told and there was some big
10 problem, they should have done something about it right away.
11 Instead, they waited. And we looked at it; it took us months
12 to value it. We published our financials. The valuation
13 attributed to what we got in the repo, including what we
14 received in the December settlement, was 45.5 billion. We told
15 them at the time the marks were wrong, our public financials
16 confirmed the marks are wrong, we say in this proceeding the
17 marks were wrong.
18 Their new evidence is this: The marks were right.
19 Because it was in an e-mail in Barclays. We discovered an
20 e-mail summarizing the marks like that, that they were sent at
21 the time. That's the charade of this five billion dollar
22 discount. And to show why it's a charade, we would like to
23 know what their financial advisors thought about that CUSIP
24 list at the time.
25 May I have slide A-3, please?

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1 Let me just summarize our argument, Your Honor, and
2 then I won't take any more of the Court's time. There are
3 three reasons why what we request in this narrower motion from
4 our motion from last year -- we are only now seeking the
5 financial analyses, not attorney-client communications. Those
6 financial analyses are not work product, to begin with. There
7 was no lawsuit in September, October, November, December 2008,
8 all the way through to March of 2009 when they're defending the
9 sale order. They couldn't have been defending the sale order
10 and planning to sue Barclays at the same time. There was no
11 lawsuit. There is no work product protection.
12 Number two, even if there were work product
13 protection, it is a necessary element of their claims that they
14 show that their financial advisors couldn't figure this out and
15 gave them bad information and that's why they were justifiably
16 ignorant. They have placed what their advisors did directly at
17 issue, and so there is an at-issue waiver of that work product.
18 And third, Your Honor, whatever else you may think, it
19 is simply not fair. It's not fair for them to come a year
20 later and say they didn't understand this CUSIP list that they
21 were given at the time, even though they had all these advisors
22 to analyze it. And now they're coming back to say that the
23 marks were right after all.
24 We have a substantial need, that we cannot satisfy any
25 other way, to know what they really did think at the time, to

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1 have all those questions we asked in deposition answered, and
2 to have these financial analyses, that are on the privilege log
3 that they refuse to produce, produced to us.
4 Your Honor, unless you have any other questions,
5 that's really the essence of our argument. Obviously, we have
6 some case law that we think supports us, but that is our
7 argument.
8 THE COURT: All right. Thank you.
9 MR. HUME: Thank you.
10 MR. TECCE: Good morning, Your Honor. For the record,
11 James Tecce of Quinn Emanuel Urquhart & Sullivan, on behalf of
12 the official committee.
13 Your Honor, addressing a question Your Honor raised to
14 Barclay, first in my presentation this morning relating to the
15 timing of the filing of the instant motion, I would just note
16 for the record that Mr. Burian's deposition was taken on the
17 17th of December. This Court issued its ruling with respect to
18 Barclays' request for attorney-client communications on the
19 16th of December, and that motion specifically reserved the
20 right, Barclays' motion, to raise the issue of attorney work
21 product at a later time. Mr. Burian's deposition was taken the
22 very next day, Mr. Fazio's deposition was taken in February,
23 and we are here on the eve of trial defending against this
24 motion, which was filed on the 14th of April.
25 And, Your Honor, when you denied Barclays' motion in

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1 December, you noted in your decision that, considering the
2 importance of attorney-client privilege, which is what was at
3 issue in that motion, you noted that the Second Circuit
4 cautions that rules which result in a waiver of this privilege,
5 and thus possess the potential to weaken attorney-client trust,
6 should be formulated with caution.
7 And today, Your Honor, you're engaging in an equally
8 weighty examination of the work product privilege, which
9 briefly has been described as critical to the adversary system
10 since it allows attorneys to be free to prepare their cases
11 without fear that their work product will be used against their
12 clients. And for that reason, Your Honor, we submit that
13 Barclays' instant demand for documents protected by the work
14 product privilege warrants the very same careful scrutiny that
15 was employed with respect to the request for attorney-client
16 communications.
17 We also maintain that Barclays' argument is no more
18 compelling today than it was in December, and indeed it
19 actually suffers from the record that has developed since
20 December, including the pleadings that have been filed in this
21 case and the oral argument that was held on April 9th, because
22 what that record confirms is that Barclays has not demonstrated
23 the indispensable requirement for establishing an at-issue
24 waiver, because the committee does not rely on attorney work
25 product materials in asserting its claims, especially with

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1 respect to new evidence, and especially with respect to
2 timeliness.
3 The committee's motion rests on newly discovered
4 evidence that was unearthed in the Rule 2004 discovery,
5 including e-mails and deposition testimony concerning discounts
6 from book value, e-mails concerning an agreement about that
7 discount at the time the asset purchase agreement was executed,
8 e-mails and deposition testimony concerning the use of the
9 Barclays repurchase agreement as a vehicle to transfer that
10 discount, and e-mails and deposition testimony concerning the
11 attribution of liquidation valuations to the securities
12 transferred as part of the transaction.
13 Similarly, Your Honor, and this is an important point,
14 the committee argues it was justifiably ignorant of that
15 evidence, of that evidence, without reference to our reliance
16 on attorney work product. That is the standard. Barclays
17 argues that we have to argue that we were ignorant of the
18 transaction. That's not correct. We have to argue and
19 establish, and we have established, that we were ignorant of
20 the evidence, and we were because it was not uncovered until
21 Rule 2004 discovery was initiated.
22 In terms of timeliness, Your Honor, again, we do not
23 rely on attorney work product in establishing that we filed our
24 motions on a timely basis. We point to the deficiency and
25 inaccuracy of the information that was provided to the

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1 committee. We point to the statements that were provided to
2 the Court that we argue have proven inaccurate. And we point
3 to the steps that we took to try and get a reconciliation
4 concerning the transaction. At no point do we rely on attorney
5 work product in making those elements. We rely on the timeline
6 that we established, that we mentioned in oral argument and
7 that we will establish at trial.
8 Again, Barclays characterizes our claim as necessarily
9 misunderstanding the terms of the transaction. But that's not
10 an accurate characterization of our claim, Your Honor. Our
11 claim is an objective claim. Our claim is that this
12 transaction that was described to Your Honor, that was reviewed
13 by Your Honor and that was proved by Your Honor, that that
14 transaction is not the transaction that was ultimately
15 consummated. It examines the objective facts of what the Court
16 was told, and it examines the objective facts of what were the
17 contours of the consummated transaction. State of mind is not
18 relevant in establishing the elements of that claim, Your
19 Honor.
20 Our understanding -- we were in court on the day of
21 the sale hearing, Your Honor. We heard the number 47.4 billion
22 mentioned to the Court. At no -- we don't argue that we didn't
23 understand that number. What we argue is that that number was
24 not an accurate number, and at trial we will prove what the
25 accurate number of the value of the assets that were

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1 transferred was.
2 Your Honor, with respect to substantial need, which
3 Barclays must satisfy in order to prove it's entitled to work
4 product protection, it has been offered and given a wide array
5 of options to unearth the evidence that it maintains exists.
6 It maintains that the committee was aware of the terms, the
7 material terms, of the transaction as it was consummated.
8 And since December even, it has been given access to
9 nearly every principal and professional that was involved in
10 the sale transaction. It has been given access to the
11 committee's witnesses and it has been able to ask those
12 witnesses what they were told by third parties to ascertain
13 whether the committee knew or learned of what it believes were
14 the material terms of the transaction. It has deposed the
15 chairman of the creditors' committee, it has deposed two
16 Houlihan Lokey witnesses, it has deposed an FTI witness, and it
17 has deposed a Milbank Tweed witness. It also has deposed third
18 parties about what they told the creditors' committee and their
19 professionals, including five witnesses from Alvarez & Marsal,
20 Lazard Freres' 30(b)(6) witness, a Weil Gotshal witness, a
21 Simpson Thacher witness, a Hughes Hubbard witness, and, as you
22 saw, a Deloitte & Touche witness, where they were asked the
23 very questions that they maintained that they had not access
24 now.
25 The centerpiece of their knowledge argument is the

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1 September 17th press release and analyst call which Mr. Hume
2 mentioned in his argument. They also argue that an October 8th
3 presentation to the creditors' committee indicates that these
4 documents reveal that in fact, in point of fact, the committee
5 was aware of the salient terms of the consummated transaction.
6 But they have been given the opportunity, Your Honor, to show
7 those documents to every one of the witnesses that I just
8 mentioned during their depositions, and they were not
9 instructed in response to press releases that they were not
10 (sic) instructed not to answer. They also -- I don't know as a
11 matter of fact whether the newspaper articles that were
12 mentioned were shown to each one of these witnesses, but they
13 certainly had the opportunity to show those articles to the
14 witnesses and ask them questions as to whether or not they knew
15 the facts in those articles.
16 Your Honor, on the point of whether or not these
17 materials were prepared in anticipation of litigation and
18 Barclays' argument that they were not prepared in anticipation
19 of litigation, our brief is very detailed on this point. And I
20 will not rehash the arguments that are set forth in our brief,
21 but there are three points that I would like to make. The
22 first, Your Honor, that in this circuit the standard is a more
23 relaxed standard, the, quote/unquote, "because of litigation"
24 standard. And that does mean that if it can be freely said
25 that the document was prepared because of the prospect of

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1 litigation, then it was prepared in anticipation of litigation
2 for purposes of the rule. And that's a more lenient standard
3 that the simple "prepared in anticipation of litigation"
4 standard.
5 THE COURT: Let me ask you a question as it relates to
6 the committee's professionals in reference to that standard.
7 Is it the position of the committee that the work product of
8 committee-retained professionals -- and I'm merely talking
9 about the financial advisors, not counsel -- constitutes work
10 product regardless of whether there is any contemplated
11 litigation on the horizon because there may be litigation on
12 the horizon at some point that can't yet be foreseen? That's
13 question 1.
14 And question 2 is, is it the committee's position that
15 this is work product simply because bankruptcy almost
16 definitionally is an adversarial process and what goes in
17 bankruptcy court is some form of litigation most every day?
18 MR. TECCE: Sure. Your Honor, the committee's
19 position is that this is work product because it was prepared
20 by a financial advisor to a statutorily appointed committee, in
21 response to a motion filed by the debtor to sell substantial
22 amount of assets, substantial amount of assets. It was
23 prepared in response to that motion. That does not mean that
24 everything that the financial advisor does for the committee is
25 automatically work product, but in this case a motion had been

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1 file to sell substantial amount of the debtors' assets. There
2 were objections to that motion filed; it was a contested matter
3 in a bankruptcy case.
4 I note, but I don't need to rely on, the case that
5 says exactly what Your Honor asked, which is that bankruptcy in
6 and of itself is litigation, and I note those cases. But, Your
7 Honor, in this particular case that is not to say -- and
8 Barclays actually argues this in their motion. We're not
9 asking for a rule that any and all work product prepared by any
10 creditor or any party-in-interest relating to a bankruptcy case
11 is protected by work product. What we're saying is that, given
12 the inherent tension in a bankruptcy case between an estate
13 fiduciary, a Chapter 11 debtor and an official committee of
14 unsecured creditors, if they come to court and seek to sell
15 substantial amount of their assets, and our financial advisor
16 is aiding the attorneys in the discharge of their duties in
17 examining that transaction, it is foreseeable that litigation
18 could ensue and the work that Houlihan does is protected by
19 attorney work product in that case.
20 THE COURT: Okay.
21 MR. TECCE: Just briefly, Your Honor, in terms of
22 timing, I opened with this because Your Honor had asked about
23 this question, but I would just note again for the record that
24 this motion -- this issue was first raised in December, and the
25 deposition that is at the subject of this motion was taken the

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1 very next day after the motion was decided. And to wait until
2 April 14th -- there's simply no reason why the motion had to
3 wait that time.
4 The last point I would make is really one of policy,
5 Your Honor, and that is that if the motion is granted, I would
6 respectfully submit that it runs against the very purpose of
7 the work product doctrine, which is to allow a zone of privacy
8 within which attorneys can formulate and prepare their cases
9 without intrusion from their adversaries. And that's
10 especially true and especially important in the bankruptcy
11 context where counsel to a creditors' committee relies on their
12 financial advisor to assist the committee in the discharge of
13 its fiduciary duties to all creditors. And in this case where
14 they were reviewing a very significant motion, I would submit
15 that that policy is most paramount, given the facts and
16 circumstances under which the work was performed.
17 Lastly, one point, Your Honor, that was raised during
18 Barclays' argument. The creditors' committee did not support
19 the appeal of the sale order through June. We did not brief --
20 we were not -- we did not submit briefs with respect to whether
21 the order should be affirmed on appeal or not. We were not a
22 party to that appeal. So I just wanted to correct that
23 statement.
25 MR. TECCE: If Your Honor has any questions -- that's

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1 my argument.
2 THE COURT: Not at this time. s
3 MR. TECCE: Thank you.
4 MR. MAGUIRE: If it please the Court. William Maguire
5 for the SIPA trustee.
6 Your Honor, the trustee does not rely on any of
7 Deloitte's work. In fact, our motion papers do not even
8 mention Deloitte's work. Why it's on the list is a complete
9 mystery. What Mr. Hume said in his argument was that the
10 movants refuse to disclose what the financial advisors
11 understood and thought about the sale at the time. Of course,
12 Deloitte did no work on the sale at that time.
13 And in answer to the question from the Court, Mr. Hume
14 told you that Deloitte was tasked immediately with doing work,
15 and we had the little show-and-tell where the very first
16 witness was the trustee's representative Mr. Kobak, who is
17 deposed in early December, and he did not testify that Deloitte
18 was tasked immediately. The testimony that you saw said that
19 Deloitte was asked at some point. And then we had the Deloitte
20 witness who testified on January 20 of this year. The Deloitte
21 witness testified that Deloitte did not attempt to value
22 anything and that the work started in late 2008 because
23 Deloitte didn't have access to the books any time before that.
24 So the notion that Deloitte was tasked immediately and
25 produced some work that would be of any relevance, even if

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1 Barclays could overcome the Erie standard, of which we heard
2 nothing in Barclays' argument --
3 As a fallback argument, you heard that, well, if
4 Deloitte accepted Barclays' values, that would be helpful or
5 relevant to Barclays. Of course the testimony from the witness
6 shows absolutely no evidentiary basis for that. The witness
7 specifically testified that Deloitte did not do any independent
8 valuation. And the witness specifically testified that
9 Deloitte did not agree or disagree with Barclays' values.
10 All this testimony from December and from January
11 explains why this motion was not brought before; it does not
12 explain why this motion was brought at all. And what we did
13 not hear from Barclays was the key standard in this circuit set
14 by the Erie case, which is the question of reliance. And since
15 the trustee is not relying on any of Deloitte's work, since the
16 trustee doesn't even mention any of Deloitte's work, there is
17 no prejudice to Barclays, there's nothing for them to address.
18 So, respectfully, Your Honor, we ask this motion be
19 denied.
20 MR. HINE: Good morning, Your Honor. Bill Hine from
21 Jones Day, on behalf of LBHI.
22 We join in the arguments made by the other movants,
23 but I did want to point out a few things that are unique to
24 LBHI with respect to this motion. As you may remember, we were
25 not a party to the prior motion that was brought before this

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1 Court, and that's largely because LBHI had agreed to a waiver
2 of its privilege, to a limited extent. We had an agreement
3 with Barclays whereby we would produce, and we did produce, all
4 the documents relating -- work product documents and attorney-
5 client documents for the period ending September 30th. We did
6 that because we felt we were in a somewhat unique position as
7 to the other movants, and we have put that in issue. We also
8 agreed to produce documents related to the December settlement.
9 So we've also produced that.
10 Contrary to suggestion from Barclays, we have not
11 withheld documents that were produced in the normal course of
12 A&M administering the estate. We have, for example, produced
13 some documents relating to A&M's efforts early on to figure out
14 what assets had made it to Barclays and what was left in the
15 estate. So the notion that we've withheld things that are not
16 work product we take issue with.
17 What we have withheld is documents relating to the
18 investigation that A&M eventually took. At some point in time
19 they do start to realize that they might have claims against
20 Barclays relating to what we've raised in our motions. It
21 started off with an analysis of why the comp and cure numbers
22 didn't add up. But basically we've withheld the documents that
23 relate to that analysis and whether there's potential claims.
24 And with all these documents we've produced, Barclays
25 has had ample opportunity to take discovery from all the other

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1 movants as well as five different A&M witnesses, including Mr.
2 Marsal and Mr. Kruse who were taken shortly after the last
3 motion. And, in addition, they've been able to interview, with
4 all those documents, all the former Lehman employees that now
5 work for them.
6 So we think -- we take issue with the notion that
7 they've demonstrated any kind of substantial need. They've had
8 a heck of a lot of discovery here and a heck of a lot of access
9 to this stuff. And we also take notion -- we dispute the
10 notion that we've withheld anything that really isn't
11 legitimate work product.
12 The second point I wanted to raise is that when you
13 look at this limited waiver that we've agreed to, it should
14 inform the analysis of whether Barclays can assert a wholesale
15 waiver, at-issue waiver, on our behalf. If you read our
16 papers, we -- Barclays argues that we moved under 60(b)(1) for
17 mistake. Well, if you read our papers, and I would point you
18 to paragraphs 151 and 155 of our reply brief, the only mistakes
19 we allege are the ones that took place during the week of
20 September 15th up to the closing, all of which were within the
21 period of our limited waiver. So they have all the documents
22 related to that.
23 Same with the newly discovered evidence. The only
24 newly discovered evidence, we allege, and I would point to our
25 reply brief at paragraph 164, is that which was produced in

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1 2004 discovery. They've had all of that. They've used all of
2 that to depose all the witnesses we've talked about.
3 The crux of their argument seems to be that it has to
4 do with timeliness. And I would just like to remind the Court
5 of our argument as to timeliness. We argued that our motion
6 was timely because we met the one-year requirement of Rule 60,
7 and also we explained the difficult circumstances that Alvarez
8 & Marsal faced when it first took over this estate. It had
9 limited access to any documents, limited access to the customer
10 system, virtually no access to its former employees who were
11 all involved in this transaction who now work for Barclays, and
12 part of that limited access was based on Barclays' own
13 misconduct under the TAA, to the point where we almost sued
14 Barclays under the TAA.
15 Now, in response to that, Barclays says, well, you
16 should have figured it out earlier, or you really knew more
17 than those documents to which you had access indicated. Well,
18 it's fine for them to argue that, and it's fine for us to
19 defend it, but the fact is there's no support in the case law
20 for the notion that a litigant can put its opponent's work
21 product in issue simply making an argument on what he
22 understood. There's just no support for the notion that you
23 can offensively use an at-issue waiver based on your
24 allegations about what we understood.
25 And so when you look at their argument as to documents

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1 relating to A&M, you'll see just that. They said that we made
2 arguments concerning the October presentation that Mr. Fogarty
3 gave, but we did that in our reply brief in response to
4 arguments that they raised. They put it in issue and we're
5 responding to (sic). We're allowed to do that. And that's not
6 a waiver, under any of the case law that they've cited.
7 The final point I wanted to make is that there's a bit
8 of a slippery slope that I'd like to alert people to, and, in
9 particular, Barclays might be concerned with this, because the
10 fact is Barclays' understanding of the economics of the
11 transaction has also been placed in issue. And unlike the
12 movants, Barclays has placed its own understanding in issue.
13 In response to a motion that is basically a motion dealing with
14 the adequacy of the disclosures that were made to the Court,
15 Barclays has argued all about its expectations, its intentions,
16 its understanding of the economics. Barclays was the first to
17 argue that it understood the comp and cure numbers to be merely
18 estimates. Barclays is the first to argue that the asset grab
19 was justified because it didn't get all the -- what it
20 understood it was going to get under the repo. Their papers
21 are laced with their putting their own understanding of the
22 transaction in issue in response to what is really a disclosure
23 motion.
24 So in that regard, I would ask that, if we are going
25 to go down the road of finding an at-issue waiver based on

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1 people's understanding, that it should be applied across the
2 board, and I doubt Barclays is going to like that.
3 That's all I have, Your Honor, unless you have
4 questions for me.
5 THE COURT: No, I don't have any questions.
6 MR. HUME: Your Honor, very briefly in rebuttal.
7 Could I have slide 13, please?
8 Obviously, logically, the first question is whether
9 what we're asking for is even protected by the work product
10 privilege, and Your Honor asked a question of the committee on
11 that. I'd like to give --
12 A-13, please.
13 -- an example from the privilege log that we can
14 provide more from the various privilege logs. These are the
15 things we're talking about concretely: a September 2008 e-mail
16 forwarding redacted communication between the financial
17 advisors regarding the Barclays sale transaction analysis
18 between Houlihan, financial advisors; September 20, 2008
19 spreadsheet regarding assets transferred in the sales
20 transaction, Houlihan Lokey, financial advisors; October 5th,
21 spreadsheet prepared by committee financial advisor regarding
22 the assets to be transferred to Barclays, nothing about
23 lawyers, nothing about attorney-client privilege, nothing about
24 litigation; e-mail regarding trustee books and records and
25 balance sheet analysis; November 3rd e-mail and attachment re:

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1 UCC presentation -- that's unsecured creditors' committee --
2 that's that PowerPoint that Alvarez & Marsal presented to the
3 committee, that we showed Your Honor two weeks ago, that talks
4 about what it calls a five billion dollar negotiated reduction
5 from Lehman's stale marks. Well, there they are talking about
6 it in November, and we don't know what they said. And it's not
7 privileged, it's not work product; it's part of their analysis
8 of the sale.
9 Mr. Tecce said that he didn't need to rely on the
10 extreme line of cases that say every single thing in bankruptcy
11 is work product, and we agree with him, he shouldn't, because
12 we don't think they could possibly make sense, nor could it
13 make sense that, if you don't contemplate litigation, that
14 something's work product just because looking back in hindsight
15 you can say, well, it's possible there might have been
16 litigation.
17 And just to understand Mr. Tecce's argument, which
18 was -- there was a motion by the debtor to sell assets; that's
19 technically a contested matter. First of all, it was also a
20 concluded contested matter. It was approved, and so there was
21 no longer a contested matter, and they didn't object. But,
22 more importantly, I want -- in this goose-versus-gander
23 argument that you heard from Mr. Hine, I would like to make
24 sure it's clear that Barclays produced all of the backup for
25 its financial analyses of these CUSIPs that were transferred.

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1 It's given dozens of depositions. We -- there's been a real
2 asymmetrical discovery here: thousands upon thousands of
3 documents about our valuation going all the way down into all
4 the valuations.
5 Should we have claimed work product privilege?
6 Because we had bought assets in a contested matter; so does
7 that mean it was protected by the work product doctrine? And
8 I'm not just saying that rhetorically. Not all of them have
9 been made public. They've made those public; they attached to
10 (sic) their briefs. We would like to know if we should call
11 back what we produced.
12 THE COURT: Well, let me just ask you a question about
13 what you've just asserted. The materials you describe, I
14 presume, largely consist of documents internal to Barclays,
15 prepared by Barclays employees, not by Barclays' financial
16 advisor or expert witnesses or counsel.
17 MR. HUME: It includes the auditors at
18 PricewaterhouseCoopers.
19 THE COURT: Okay.
20 MR. HUME: But otherwise that's right.
21 Your Honor, the committee -- so the first point on
22 rebuttal is simply most, if not all, of what we're asking for
23 here we just don't think satisfies work product privilege.
24 Secondly, Your Honor, the committee told the Court that they
25 intend in this trial to prove a number. They're going to prove

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1 that the assets we got were not 47.4, that they had this
2 understanding and it's different. But they're hiding from the
3 Court and from Barclays what their analysis of that number was
4 at the time. They have placed it in issue what they think the
5 number was, but they won't reveal the documents that show what
6 the number was.
7 Now, let met address this at-issue point that you
8 heard from the movants, and the Erie case. And the Erie case
9 says on pages 228 to 229, and I believe I tried to raise this
10 in December and probably didn't do a good enough job so I'm
11 going to try again very briefly, and it cites -- it does reject
12 the old test and it says there has to be reliance, but it
13 doesn't say the reliance has to be explicitly stated we are
14 relying. It just means there needs to be reliance.
15 And it quotes an earlier case, Bilzerian, where the
16 defendant in the case, who's accused of securities law
17 violations, wanted to testify that he had made a good-faith
18 effort to comply with the laws. And the district court judge
19 said fine, but if you're going to do that you open up cross-
20 examination on what your lawyer told you about the laws,
21 because, implicitly, if you are going to say hey, I was acting
22 in good faith and what I understood the law to permit, you're
23 placing at issue what you understood about the law, which
24 places at issue what your lawyers told you.
25 Here, in that case, the defendant had a choice: Are

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1 you going to argue good faith or not; if you are, waiver.
2 Here, they don't have a choice. The law requires them --
3 60(b)(2) and the mandate rule require them to say that they
4 were justifiably ignorant, which is why they say it in their
5 reply briefs, which we didn't get until March 18th, which is
6 why the motion was brought when it was brought. We brought it
7 initially; they said no, no, no, we don't argue that. We said,
8 well, we think you have to argue that. And we filed a brief
9 saying you have to argue that. And then, sure enough, in
10 reply, while they try to dodge the issue, they say "We were
11 justifiably ignorant." So it is at issue, it's necessarily at
12 issue, based on what they are legally required to argue.
13 The movants keep saying that our argument is based
14 upon timeliness, that we need to know why they didn't bring the
15 motion sooner. That's very fuzzy. It's much more precise than
16 that. And the reason I'm talking about the mandate rule and
17 60(b)(2), those are the two things that require them to have
18 been justifiably ignorant. It's not just because we want to
19 prove they were untimely and dilatory. They have a
20 jurisdictional requirement to show the Court why it can address
21 and modify the sale order that was affirmed on appeal. It's
22 jurisdictional.
23 And the only way, if there is any way -- and the law
24 is mixed; Second Circuit actually makes it sound like there's
25 no exception -- is that they can show they were justifiably

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1 ignorant. So they must show it. Same thing is true under Rule
2 60(b)(2). So it is not simply to show that they were untimely;
3 it's to defeat an element of their claims.
4 Your Honor, the committee said it did not support the
5 sale on appeal.
6 May I have slide 68 from our April 9th binder?
7 This is what the committee did. And, first of all,
8 obviously, the major point is they chose not to appeal, not to
9 seek reconsideration. But when an appeal was filed, they filed
10 a counterstatement in response to the appellants under Rule
11 8006. That rule allows a counterstatement only by appellees.
12 They chose in October of 2008 to act like an appellee opposing
13 the appeal. And in their counterstatement they asked
14 whether -- they reframed the issues -- whether X, Y or Z, the
15 appellants were arguing, given that Barclays, quote, "purchased
16 the property covered by the appeal, the order's in good faith"
17 given that, quote, "the appealed orders contain detailed
18 findings of fact with respect to the arm's-length nature of
19 negotiations and where no collusion has been found". They
20 framed the issues on asserted facts that squarely did defend
21 the appeal.
22 The trustee argued, Your Honor, that Deloitte was not
23 immediately asked to do an opening balance sheet. I don't know
24 what "immediately" means. What I do know is, at a minimum,
25 it's before the end of 2008 they were working on it. And they

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1 were working on it while the trustee was defending this sale on
2 appeal.
3 So we want -- if the trustee was defending the sale on
4 appeal and telling the district court that all relevant facts
5 were disclosed to this Court, and now they're saying all
6 relevant facts were not disclosed because of the financial
7 analysis that they didn't know, they're placing at issue what
8 Deloitte did know at the time in 2008 and early 2009.
9 Now, finally, Your Honor, in terms of the timing,
10 again, I've tried to explain why we brought the motion now. It
11 was within the scope of our earlier motion, which was a broad
12 privilege waiver which included a substantial-need argument for
13 work product. We focused our argument on the attorney-client
14 (sic), but our motion absolutely included work product,
15 included what we're asking for now. And the Court ruled that
16 it was an objective test and their claims were objective, not
17 subjective. They've now, in reply, confirmed our argument that
18 that is not true. That's why we brought it now. And based on
19 the scheduling developments, we have plenty of time. We are
20 going to resume this in September, and we are entitled to this
21 discovery. There are going to be defendants testifying this
22 week; we'd like to be able to cross-examine them without having
23 instructions not to answer.
24 So while we would have liked to have resolved this
25 earlier, we think we have good reasons for bringing it at this

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1 time.
2 THE COURT: Let me ask you a question as to your claim
3 of substantial need, in respect of LBHI in particular. My
4 understanding is that LBHI has provided substantial
5 documentation to Barclays without any claim of privilege, at
6 least for the period through September 30. Correct?
7 MR. HUME: Their lawyers have. They waived attorney-
8 client privilege, and so we did get the Weil Gotshal and
9 Simpson Thacher e-mails. We have not received a lot of
10 documents from LBHI directly, or Alvarez. And it is --
11 THE COURT: Are you saying you haven't you haven't
12 received substantial documentation from Alvarez & Marsal?
13 MR. HUME: I'd need to check how much we've received.
14 I just honestly, Judge, can't say that we know with any
15 confidence whether we've received everything. I think there
16 are things on the privilege log from Alvarez from before
17 September 30th.
18 THE COURT: I think the -- we can look at the slide
19 again, although I don't think we need to belabor the point. I
20 believe that everything was later than September. There was a
21 November date that I remember.
22 MR. HUME: The earlier ones that I showed you were
23 Houlihan, that's right. I'm sorry, I'm not arguing the issue;
24 I'm just not certain that everything Alvarez did before
25 September 30th that relates to the sale has been produced or

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1 whether some of it's being withheld. I could confer with a
2 colleague to know. I just don't know for sure. But there's no
3 question we've received the Weil Gotshal e-mails and the
4 Simpson Thacher e-mails under this privilege waiver.
5 THE COURT: Okay.
6 Is there anything more on this?
7 MR. HUME: Thank you, Judge Peck.
8 UNIDENTIFIED SPEAKER: Your Honor, just to clarify, I
9 believe we have produced everything from Alvarez & Marsal up to
10 the September 30th date. Everything before that, I believe, we
11 have produced.
12 THE COURT: All right.
13 I'm going to suggest a ten-minute break, and I'll make
14 some comments when I return from the break. We'll resume at
15 about five past 11. We're adjourned till then.
16 (Recess from 10:52 a.m. until 11:20 a.m.)
17 THE COURT: Please be seated.
18 I have some comments regarding the argument that was
19 just presented, but this is not yet a ruling. I'm continuing
20 to deliberate and will rule either later today or sometime this
21 week.
22 Before making the comments, I do have a couple of
23 questions as it relates to the manner in which this trial will
24 proceed, depending upon the ruling. There are obviously binary
25 choices here: Either the motion is completely denied, in which

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1 case everybody's prepared for trial as if the motion had never
2 been filed; or the motion is granted entirely as to all of the
3 movants or it's granted in part.
4 My question to the group is what it means to the trial
5 of the case that's about to begin if there are witnesses who
6 are called to the stand who are then asked questions. Will
7 there be a need for delay in order to conduct discovery,
8 assuming there is discovery to be had here? If the motion is
9 denied, will witnesses be instructed not to answer questions,
10 in the same way that they were instructed not to answer
11 questions during the excerpted deposition transcripts that I
12 saw? I'm just trying to get a sense as to what happens to this
13 trial based upon this ruling.
14 Okay, well, we'll hear from LBHI's counsel first.
15 MR. GAFFEY: Thank you.
16 THE COURT: Mr. Boies was almost ready to get up.
17 MR. GAFFEY: A little quicker off the mark, I guess,
18 Your Honor.
19 With regard to the timing issue, Your Honor, it
20 strikes me that either way, either binary choice, we still
21 should go ahead, obviously. I know that for the debtors' part
22 we have a couple of witnesses listed who are Alvarez & Marsal
23 personnel, and there's two ways we can go there. I mean, if it
24 makes more sense to move them to later, and we could do that,
25 but I recommend we go ahead. And if Your Honor did grant in

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1 full or in part the motion, we've still got that second phase;
2 we can bring them back.
3 THE COURT: Okay.
4 MR. GAFFEY: That strikes me as the practical answer.
5 THE COURT: Okay.
6 Mr. Kirpalani?
7 I guess we'll hear from the movants first; that's how
8 we're doing this.
9 MR. KIRPALANI: Just to not break up the flow. Thank
10 you, Your Honor. Susheel Kirpalani of Quinn Emanuel, for the
11 committee.
12 In terms of -- it depends a little bit in terms of
13 whether we'd need to bring people back, depending on when Your
14 Honor rules. The two committee witnesses -- Mr. Despins is
15 going to be here this Friday, and Mr. Burian is going to be
16 here next Monday. And if Your Honor were to rule and grant
17 Barclays' request -- for example, tomorrow, I think, for my
18 team, I know we have about ninety documents that have been
19 logged as the ones that we've withheld on this basis --
20 depositions of Mr. Despins and Mr. Burian could happen this
21 week, I'm sure, and not interrupt that.
22 To the extent that they do -- Your Honor has not had
23 an opportunity to yet rule on the issue or you still want to
24 deliberate over it, I do intend to instruct Mr. Despins and Mr.
25 Burian not to answer if they're asked the same types of

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1 questions. And if they have to come back after Your Honor's
2 ruling, they're both here in New York.
4 MR. BOIES: Your Honor, the advantage of letting them
5 go first is that I agree with them. I don't have anything to
6 add to what they've said. I think we can go forward.
7 THE COURT: Fine.
8 MR. BOIES: And we can deal with any necessity of
9 bringing people back, which I think would be very limited, if
10 it comes up.
11 THE COURT: Okay. Terrific.
12 Here's how I view the issues, at least on a
13 preliminary basis, and I'm being fairly transparent here and
14 telling you what I'm having some trouble with in terms of the
15 argument. The Barclays motion is one discovery motion, but it
16 really applies to three very different kinds of litigants and
17 different sources of documentary evidence. I view the excerpts
18 that were played of the Deloitte deposition as actually much
19 more damaging to the Barclays position than helpful in that I
20 don't believe that the Deloitte witness has anything to offer
21 that's relevant to the motion brought by the SIPA trustee, and
22 the work product isn't even yet complete.
23 As to the LBHI position, the fact that it seems to be
24 undisputed that Alvarez & Marsal has turned over all work
25 product generated through the end of September 2008, pursuant

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1 to the letter agreement providing a limited waiver,
2 demonstrates to me that, at least as to LBHI, it's very
3 difficult for Barclays to establish substantial need. In the
4 case of the committee, I'm having some more difficulty.
5 On the general question of whether or not the work
6 product of these retained financial advisors qualifies for
7 purposes of protection, I'm satisfied that it's all work
8 product. I believe that work done by retained professionals in
9 a bankruptcy case may not always be work product, but the focus
10 of this particular discovery, to me, indisputably is work
11 product.
12 In the case of Deloitte and the SIPA trustee, this is
13 work being conducted by Deloitte in the context of actual
14 litigation. The SIPA liquidation proceeding arises as a result
15 of the commencement of a litigation in the district court which
16 is sent to me; that's how this happened. It's not a Chapter 11
17 case. And while it sometimes appears to be disarmingly like a
18 Chapter 11 case, it's not. The case itself is one identifiable
19 separately docketed litigation.
20 Moreover, in the context of the SIPA liquidation, I am
21 aware and take judicial notice of the fact that there's a lot
22 of litigation within that litigation, particularly relating to
23 the allowance of claims, the determination of what is or is not
24 customer property, and similar matters. So I have little doubt
25 that whatever work has been done by Deloitte at the request of

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1 the SIPA trustee, and upon which the SIPA trustee either has
2 relied or will rely in the future, is work product.
3 As to LBHI, similarly I have no doubt but that work
4 performed by Alvarez & Marsal may be work product. Alvarez &
5 Marsal is in an ambiguous spot here. Unlike FTI and Houlihan
6 Lokey who are professionals retained by a creditors' committee,
7 Alvarez & Marsal has functioned as the purchased infrastructure
8 for Lehman Brothers Inc. and for Lehman Brothers Holdings Inc.
9 Alvarez & Marsal, during the early months of this bankruptcy,
10 provided what amounted to outplacement employees for the lost
11 Lehman employees. So it's not entirely clear to me that
12 everything that Alvarez & Marsal produced at any point in time
13 is to be treated as if it's the work product of a financial
14 advisory firm that has been retained to work in conjunction
15 with outside counsel.
16 But I am reasonably satisfied that during the period
17 in question for which the limited waiver has already been
18 given, Alvarez & Marsal was at least doing enough work that
19 could be fairly characterized as advisory and, in consultation
20 with Weil, Gotshal & Manges as debtors' counsel, to be deemed
21 work product.
22 As to the period thereafter, there may be room for
23 debate and factual inquiry, but I'm not going to go there
24 because I'm not going to grant the motion as it relates to that
25 period of time, as it relates to LBHI. I believe that it

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1 becomes difficult, if not impossible, for Barclays, as to this
2 particular part of its request, to demonstrate substantial
3 need.
4 Where I am going to spend some time deliberating is
5 the request as it relates to the committee. I heard the
6 argument of committee counsel that the at-issue waiver
7 question, to the extent that it relates to justifiable
8 ignorance of the evidence, does not relate to what the
9 committee advisors knew or thought they knew at a various point
10 in time but, rather, documents and evidence and other parts of
11 the record that I will come to learn during the course of the
12 trial that were withheld from the committee, and presumably
13 also withheld from the Court, at the time of the approval
14 hearing on September 19th, 2008.
15 The committee still makes the argument, which I found
16 persuasive once before, that there's an objective test here,
17 not a subjective one, and that the mental impressions of the
18 committee's advisors are really completely irrelevant to the
19 evidence that will be presented during the hearing.
20 In opposition to that, Barclays argues that they have
21 a substantial need to know what the committee understood about
22 this very important sale transaction, not in September of 2008
23 so much as throughout the entire period from September 2008
24 through March 13th 2009 when the district court affirmed the
25 sale order. Presumably the reason that they are so concerned

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1 about that is that they are looking for the proverbial smoking
2 gun: the document or documents that would reveal an
3 understanding of the transaction at a sufficiently complete and
4 comprehensive level to demonstrate waiver and estoppel and
5 positions inconsistent with those being taken now.
6 In effect, the substantial need that Barclays has for
7 the material being withheld on the grounds of work product
8 privilege is the substantial need to defend itself by being
9 able to find facts thus far concealed, congruent with its
10 theories of the case. I can understand why they want this
11 information.
12 I'm going to spend some more time thinking about the
13 briefs that have been submitted and the arguments that have
14 been presented, and will endeavor to decide this as promptly as
15 I can, consistent with getting it right. But in terms of
16 preliminary indications of outcome, substantially for the same
17 reasons stated by the Court in December of 2009, as to the work
18 product of Deloitte and the work product of A&M after September
19 30, 2008, you should assume the motion will be denied. As to
20 the request for FTI and Houlihan, you should make no
21 assumptions whatsoever as to what I'm going to do, but I'll do
22 it quickly, I hope.
23 Now let's proceed.
24 MR. GAFFEY: Your Honor, Movant's prepared to call its
25 first witness, Michael Ainslie. I have two minor housekeeping

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1 matters that will make things go, I think, a lot more smoothly
2 as we proceed, both with Mr. Ainslie and the other witnesses.
3 First, I'm pleased to report we have -- although I don't have
4 the signed copy to put in to the court, we have reached some
5 stipulations of fact, and they're signed off, Your Honor. And
6 as I said at the pretrial conference, that puts us in a
7 position, having gotten some but not all of what we want, to
8 withdraw the motion in limine regarding admissions of fact. So
9 that's a motion that we can remove from the Court's docket and
10 we'll send the appropriate notice to do that.
11 THE COURT: I'm very pleased that it's been removed.
12 MR. GAFFEY: And we'll also get Your Honor a copy of
13 the stip so you know what facts have been agreed.
14 THE COURT: Great.
15 MR. GAFFEY: Secondly, at the pretrial conference,
16 Your Honor will recall, we agreed that all documents -- all
17 exhibits as to which no objection was lodged would be moved
18 into evidence on the first day. And, again, I'm happy to
19 report there's quite a few of those, not as many as one would
20 like, but I have -- what I was going to suggest is -- I put
21 together a list of -- for the movant's side, those exhibits;
22 that is, those to which there is no Barclays objection. And if
23 I could ask the Court to mark that as a court exhibit, we'll
24 have a record of those by exhibit number rather than I have to
25 read them all out now; there's several hundred of them. Does

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1 that make sense?
2 THE COURT: I don't mark exhibits, but if you want to
3 have me hold onto it in some identifiable fashion, I will.
4 MR. GAFFEY: At the very least, Your Honor, I think it
5 would be helpful for you to have so if a document comes up
6 and -- well, this confirms that there are no objections to it.
7 THE COURT: Why don't you just hand it up and I'll
8 deal with it as I deal with all --
9 MR. GAFFEY: Okay.
10 THE COURT: -- my other papers: It'll just up here.
11 But it won't be an exhibit, unless you want it to be, in which
12 case you'll have to mark it.
13 MR. GAFFEY: It's not an exhibit, Your Honor. That's
14 fine. We'll need maybe at the end of a court date to just put
15 these exhibit numbers into the record so there is a record of
16 what's in evidence and what's not, by exhibit number.
17 THE COURT: That's fine.
18 MR. GAFFEY: Okay. And with that, Your Honor, the
19 movants are prepared to call their first witness, Michael
20 Ainslie.
21 THE COURT: Mr. Ainslie, good morning. Please raise
22 your right hand.
23 (Witness duly sworn)
25 THE WITNESS: Thank you.

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1 MR. GAFFEY: Your Honor, we've also prepared witness
2 books, and I've supplied one to Barclays' counsel. If the
3 Court would find it useful -- what our plan is with respect to
4 any witness, there's a book that contains the exhibits; we
5 anticipate using a copy of the deposition transcript.
6 THE COURT: I'd be very happy to have the book.
7 MR. GAFFEY: Fine. Thanks.
9 MR. GAFFEY: And if it's all right with Your Honor,
10 I'll hand one to Mr. Ainslie as well, in case he needs his
11 transcript during --
12 THE COURT: Sure.
13 MR. GAFFEY: -- testimony?
15 MR. GAFFEY: So there's a dry run of all the
16 housekeeping, Your Honor. And with that --
17 DIRECT EXAMINATION
18 BY MR. GAFFEY:
19 Q. Good afternoon, Mr. Ainslie.
20 A. Good morning.
21 Q. Mr. Ainslie, if you could keep your voice up and into the
22 microphone, that would be quite helpful.
23 Would you give the Court a brief summary of your education
24 and business background, sir?
25 A. Yes. I was an undergraduate at Vanderbilt University,

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1 studied economics and minored in math there, graduating in
2 1965. Following that, I was awarded a Corning World Travel
3 Fellowship and spent a year traveling around the world,
4 studying economic development. And then following that year, I
5 returned and attended Harvard Business School where I graduated
6 in 1968 with an MBA in finance.
7 Subsequent to that, I went to work in New York as a
8 consultant with McKinsey & Company for several years, and in
9 the early '70s left consulting to become president of a real
10 estate company that was a subsidiary of the Sea Pines Company
11 at Hilton Head Island; spent almost five years doing that. And
12 in the mid-'70s, I think '75, I moved to Cincinnati to become
13 chief operating officer of a company there called Enrin (ph.)
14 Corporation, which was in the oil and gas and fertilizer
15 businesses.
16 While living in Cincinnati, I restored several homes and
17 investment properties and became very involved with the
18 National Trust for Historic Preservation, and in 1980 I was
19 asked to come there as president and chief executive of the
20 National Trust and moved my family to Washington and lived
21 there for almost five years in that nonprofit national advocacy
22 organization.
23 And in the mid-'80s I was approached by an executive
24 search firm to consider going to Sotheby's, and in, I think,
25 late '84/mid-'84 I accepted that position and moved to New York

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1 and became the CEO of Sotheby's Holdings and a director of that
2 company. In that role, I oversaw the worldwide auction
3 businesses, the real estate business and the financial services
4 business of Sotheby's, all -- basically all of the businesses
5 of Sotheby's. And I continued in that role until 1994.
6 After a decade of doing that, I chose to retire from that
7 position and I set up an investment company of my own and have
8 been very involved in the nonprofit world subsequently and
9 served on several other boards.
10 Q. And are you currently serving as a member of any board,
11 sir, any corporate boards?
12 A. Yes.
13 Q. Are you on the board of Lehman Corporate -- of Lehman
14 Brothers, sir?
15 A. I am a director of LBHI, the estate, yes.
16 Q. And how long have you been on the board of LBHI?
17 A. I believe my initial appointment was in 1996.
18 Q. And has your service on the board been continuous since
19 that time?
20 A. Yes.
21 Q. Are you on any committees of the board, or have you served
22 at any time on committees of the board?
23 A. Yes, I served for the entire time on the audit committee.
24 I currently still serve on that audit committee. And beginning
25 last summer I became a member of the executive committee of the

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1 board. I also served for several years as a director of Lehman
2 Brothers Bank, which was a subsidiary, and chairman of that
3 bank's audit committee.
4 Q. I take it, as a member of the board, sir, you recall the
5 times in or around September of 2008 when ultimately Lehman
6 filed a bankruptcy petition, correct?
7 A. I do.
8 Q. And to direct your attention to that time, sir, would you
9 describe to the Court what your activities were as a board
10 member over the weekend of September 13th and 14th, just prior
11 to the bankruptcy filing?
12 A. Yes. On the 14th, which I think was Sunday, September
13 14th, the board was called to New York for meetings. We had a
14 meeting in the afternoon where we were briefed on possible sale
15 prospects for the firm -- or parts of the firm. And we then
16 had a recess and reconvened later in the evening on Sunday
17 night, really, and it was at that meeting that we were told
18 that Barclays was no longer a prospect for buying the firm and
19 that we, after long, long consultation with counsel, painful
20 consultation, decided that filing a chapter proceeding was the
21 best course of action.
22 Q. Now, you referred to Barclays no longer being a prospect
23 for buying the firm. Had you been aware of any discussions
24 with Barclays prior to that weekend?
25 A. Yes.

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1 Q. Could you describe to the Court what you knew or learned
2 about those discussions with Barclays prior to the weekend of
3 the 13th and the 14th?
4 A. We were apprised that there were two firms interested in
5 buying -- possibly buying Lehman: One was Bank of America and
6 the other was Barclays. And we were told, I believe on Sunday
7 afternoon, that there were issues with Barclays, that there
8 were regulatory issues in the U.K. that might be insurmountable
9 in terms of their getting approval to do this. And I think we
10 were also told that they might require a full shareholder vote,
11 which would create a time delay that might be unacceptable.
12 Q. So come the Sunday when the board is discussing whether or
13 not to file a bankruptcy petition, what's the state of play on
14 Sunday with regard to potential acquirers of the firm?
15 A. Sunday afternoon we were advised by Dick Fuld that he had
16 had a frustrating weekend with Bank of America, trying to get
17 through to their CEO, and that he had finally been advised that
18 they were not an interested party. We were not advised as to
19 what they were doing, which we learned later, as I recall it.
20 We still believed during the afternoon that there was a
21 real possibility of a deal with Barclays. There was some
22 degree of optimism about that, but we then adjourned for
23 several hours and then were told in the -- upon reconvening
24 that that now was a dead issue and was not going to happen.
25 Q. And who was it that had told you it was a dead issue, it

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1 was not going to happen?
2 A. Well, it was Dick Fuld, and I think Bart McDade was also
3 part of that conversation.
4 Q. So from that point, sir, would you describe to the Court
5 the meeting of the board that resulted in the decision to file
6 a bankruptcy petition?
7 A. Well, we heard from our treasurer that there was going to
8 be very great difficulty funding the firm -- our CFO, excuse
9 me; he'd been treasurer previously. We heard from bankruptcy
10 counsel what our responsibilities as a board were and what our
11 options were. We had a very lively debate about whether that
12 was truly required at that point in time or whether we should
13 attempt to go forward even given the difficulties of funding.
14 And around 9 p.m. we were in the midst of those deliberations
15 and we had an interruption. Dick Fuld was asked to, by his
16 assistant, to leave the meeting to take a call from the
17 commissioner of the SEC and the general counsel of the Fed. I
18 don't know that we knew that when he left the meeting, but when
19 he returned about five minutes later he told us they were on
20 the phone and that they wanted to speak to the full board.
21 So with some degree of exasperation, he put through
22 Chairman Cox -- and I don't remember the Fed counsel's name --
23 and they were on a speaker in the middle of our board room, and
24 proceeded to tell us in rather oblique but rather clear terms
25 that we needed to act immediately and that we needed to act --

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1 we needed to do what we needed to do. And we were at --
2 several of our board members asked questions: What are you
3 saying? Are you, the federal government, telling us to declare
4 bankruptcy? And they denied that they were but then said:
5 Your management knows what our opinion on this is, we told them
6 at 4 o'clock meetings this afternoon, which had been that we
7 needed to declare bankruptcy.
8 Cox was very insistent. There was a question asked of
9 him, I recall, which was will you fund -- are you saying you
10 will not fund the broker-dealer tomorrow if we don't declare
11 bankruptcy? And after some hesitation, I think he answered no,
12 I'm not saying that. But we basically asked him some questions
13 about what was really going on here. He became somewhat
14 defensive after a few minutes and finally said I think we need
15 to end this conversation, and fairly quickly he did so.
16 We then spent a good bit of time, in fact perhaps a more
17 lengthy time than we might otherwise have, debating not
18 declaring bankruptcy because of the arrogance of what we
19 perceived as a -- really, an inappropriate bit of advice. But
20 after, again, a long discussion with Weil Gotshal and our in-
21 house counsel Tom Russo and others, we really concluded there
22 were no alternatives. So we voted sometime late that evening
23 to declare bankruptcy and have management implement that, which
24 I think was filed in the wee hours of the next morning.
25 Q. Now, after the bankruptcy filing, when was the next time

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1 that the board met?
2 A. As I recall, the -- that was the 14th, the evening of the
3 14th, and I think the next meeting was a day and a half, two
4 days later, early in the morning of September 16th.
5 Q. And what did you learn would be the topic of that meeting
6 on the 16th?
7 A. The -- there were several topics, but one of the
8 principals ones was the possible sale of the broker-dealer,
9 which was the New York Lehman Brothers' business activity, to
10 Barclays. There was also discussion and an ultimate resolution
11 of retaining Alvarez & Marsal to manage the affairs of the
12 estate. I think there were some financing issues of debtor-in-
13 possession financing that were also put forth. So those were
14 the principal subjects of that September 16th meeting.
15 Q. Did you receive any written materials describing what the
16 topics would be, or were -- did you receive any written
17 materials, prior to the commencement of the meeting, about the
18 business that would be addressed at the meeting?
19 A. To my recollection, no.
20 Q. Did you attend the meeting?
21 A. I did attend the meeting.
22 Q. And approximately what time of day did the meeting begin?
23 A. The meeting was very early. I think the time called was
24 6 a.m. That's when -- I was -- as I think most directors had,
25 returned home and participated by telephone.

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1 Q. Now, in the course of that meeting, did you underst -- did
2 you develop an understanding of the transaction that was
3 proposed to take place between Lehman and Barclays?
4 A. I did.
5 Q. Okay. And who spoke at that meeting about the proposed
6 transaction?
7 A. Well, there were several people that spoke, as I recall.
8 I think Tom Roberts of Weil Gotshal spoke. One of our staff
9 people, Mark Schaffer, I think, spoke at some time during the
10 meeting. I'm sure that Dick Fuld spoke and Bart McDade. And
11 there were other lawyers, and I think a Lazard partner was also
12 present and spoke to the board.
13 Q. Do you remember the names of the other lawyers who were
14 there, apart from Tom Roberts?
15 A. I think one of the lawyers was a man named Lubowitz for
16 Weil Gotshal.
17 Q. Was Harvey Miller there?
18 A. I am not certain. I don't remember him speaking. As I
19 said, I was on the phone, so it's hard to know and recall from
20 a meeting about eighteen/nineteen months ago exactly who all
21 was there.
22 Q. Do you remember the name of the person from Lazard?
23 A. I think his name was Barry Ridings.
24 Q. And who spoke first about the nature and structure of the
25 transaction?

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1 A. I think -- Tom Roberts was the person who outlined the
2 overall structure of the transaction.
3 Q. Would you describe to the Court what your understanding
4 was of the outline -- of the structure of the transaction after
5 Mr. Roberts outlined it?
6 A. Well, it was actually quite simple, and it was basically a
7 transaction whereby the assets and the liabilities were equal.
8 And at some point during the meeting it was described as a
9 wash. And there was some discussion about what was included in
10 the sale, particularly questions about the asset management
11 division, most of which was known as Neuberger Berman, which we
12 were told was not included. And there were discussions about
13 obligations that were being assumed -- would be assumed if the
14 transaction went through by Barclays, having to do with
15 employee obligations, both severance and bonus, I believe. And
16 there were also contract issues that Barclays would assume,
17 contract claims.
18 Q. Now, you said, sir, the word "wash" was used. Do you
19 remember if Mr. Roberts himself used the word "wash"?
20 A. I am not certain who used it. I am quite certain that the
21 concept of assets and liabilities equating was described by Tom
22 Roberts. There was a later conversation amongst the directors
23 and Tom Russo, summed up the transaction. It's possible that's
24 when the word "wash" was used.
25 So I'm not certain exactly who used it, but it was used in

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1 the course of the meeting.
2 Q. Okay. Now, in the course of the meeting where Mr. Russo
3 and the directors had a discussion and summed it up, were the
4 advisors still present for that portion of that meeting?
5 A. Yes, I believe so.
6 Q. Okay. Now, in addition to Mr. Roberts, who else described
7 the transaction in terms -- if anyone, in terms of its
8 structure?
9 A. Well, I remember at the end of the meeting Tom Cruickshank
10 kind of led a summary -- Tom was chairman of our audit
11 committee and one of our board members -- and brought together
12 the key elements. And there was some interaction, as I recall,
13 between him and Tom Russo in describing -- Tom was our general
14 counsel and someone we had known for a long time. And that was
15 the -- kind of the backend of the conversation where the
16 overall structure was explained.
17 Q. Now, when this discussion took place of a wash or an
18 exchange of assets and liabilities, do you recall, sir, whether
19 particular figures were used about the value of the assets, the
20 value of the liabilities?
21 A. I do not recall specific numbers from that meeting. I
22 recall very clearly the deal structure, because we had been
23 briefed already that we were now working for the creditors as
24 the board of Lehman, the Lehman estate. And we were concerned
25 about claims, and this deal structure seemed to eliminate the

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1 possibility of a loss to Lehman or claims that would more than
2 offset the value of the assets being transferred. It was a
3 very simple deal in reality, assets equal liabilities, and that
4 sticks with me very clearly.
5 Q. You mentioned a discussion about a loss to Lehman. Was
6 there any discussion about a gain to Barclays upon the
7 transaction?
8 A. No, not that I recall.
9 Q. At any part (sic) in the meeting, to your knowledge, sir,
10 was the board told it would be a condition of the transaction
11 that there be an immediate day-one gain for Barclays?
12 A. No.
13 Q. Would that have been -- was that consistent with what you
14 were told at the meeting?
15 A. No, it would not have been.
16 Q. Was the board told at any point it was imperative there be
17 a day-one gain for Barclays upon conclusion of the transaction?
18 A. No.
19 Q. Okay. What was your understanding of the state of the
20 proposal vis-a-vis discussions between Lehman and Barclays?
21 Had there been a documented deal?
22 A. I'm sorry, the last statement?
23 Q. Had there -- had the deal been documented at the point the
24 board was told about it?
25 A. Um --

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1 Q. Is there a written agreement, sir?
2 A. There was -- to my knowledge, there was no written
3 agreement, and in fact Bart McDade was dismissed from the
4 meeting before the conclusion so that he could go resume work
5 on the transaction.
6 Q. Did you ever see a copy of the written agreement embodying
7 the transaction, the deal between Lehman and Barclays?
8 A. No.
9 Q. Did you have an understanding at the time of the board
10 meeting whether the transaction would have to be approved by
11 this Court?
12 A. I believe we had had a briefing that we were -- we, the
13 board, were part of a stepped process that would -- a major
14 transaction such as this would go from Alvarez & Marsal to us,
15 to the creditors' committee and to Judge Peck.
16 So, yes, I -- we were aware that this would go forward to
17 the bankruptcy court.
18 Q. Now, after the discussion, after the presentations by
19 those present and the discussion you described between Mr.
20 Russo and the boards where the deal was summarized, what did
21 the board do with respect to the proposal of a transaction with
22 Barclays?
23 A. We passed a resolution that basically said that the
24 outline of the transaction as we had had it presented was
25 approved and management was directed to implement it.

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1 Q. Was there any part of the transaction, to your knowledge,
2 sir, that the board approved, that incorporated an
3 asset/liability mismatch in Barclays' favor?
4 A. No. As I said, the assets and liabilities, including
5 assumed obligations, were supposed to match.
6 Q. Did there come a time when you saw the minutes of the --
7 were minutes generated of the September 16th, 2008 meeting?
8 A. Yes.
9 Q. Have you seen those minutes, sir?
10 A. I have.
11 MR. GAFFEY: Your Honor, may I approach?
12 THE COURT: Yes, you may.
13 Q. Mr. Ainslie, I'm showing you what we've marked as Movants'
14 Exhibit 9 in evidence. Do you recognize the document?
15 A. Yes. It appears to be those minutes.
16 Q. As a matter of course, sir, were board members supplied
17 with minutes after a meeting?
18 A. Yes.
19 Q. As a matter of course, are board members supplied with
20 drafts of minutes?
21 A. No.
22 Q. Prior to your becoming involved as a witness in this case
23 by deposition or by appearing today, have you ever seen drafts
24 of those minutes?
25 A. No.

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1 Q. Would you take a look, sir, at page 3 of Exhibit 9, sir,
2 the minutes?
3 A. Yes, I'm seeing --
4 Q. Well, let me ask you as a general matter, Mr. Ainslie,
5 have you reviewed these minutes prior to testifying today?
6 A. Yes, I have.
7 Q. And in your view, are they consistent with a transaction
8 you had described to you as a member of the board on the 16th
9 of September, 2008?
10 A. I think generally, they are.
11 Q. And if you would take a look at page 4, sir, in the third
12 paragraph from the bottom that begins, "Mr. Russo asked for any
13 questions or comments." Do you see that?
14 A. Yes, I do.
15 Q. Do you understand that to be a reference to the discussion
16 you referred to before where Mr. Russo spoke to the directors
17 and the deal was summarized?
18 A. Yes.
19 Q. Do you have a recollection, sir, if in that discussion, in
20 that portion of the meeting, the word "wash" was used?
21 A. I believe that it was.
22 Q. Do you have a recollection of who in that discussion said
23 it?
24 A. I'm -- I believe that it was Tom Russo who was summarizing
25 the director's comments as we outlined the elements of the

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1 deal.
2 Q. And directing your attention, sir, to page 5 of the --
3 actually, page 6 of the minutes, sir, to the paragraph entitled
4 Authorization of Asset Purchase Agreement. You with me?
5 A. Yes.
6 Q. And you'll see that from page 6 and overleaf onto page 7,
7 there are three resolutions. Are those the resolutions you
8 told the Court about that authorized the transaction between
9 Lehman and Barclays?
10 A. Yes, that is -- those are the resolutions.
11 Q. Okay, now when the board approved the transactions, sir,
12 did you have any knowledge or involvement in the actual
13 valuation of the assets being discussed?
14 A. No.
15 Q. Would that have, in your view, been normal for a board
16 member to get involved in the valuation of the assets being
17 discussed when considering whether to authorize an asset
18 purchase agreement?
19 A. No, not only would it not have been normal, it would have
20 been highly abnormal. That's what management is there for.
21 Q. After the conclusion of the September 16th, 2008 meeting,
22 did you at any point receive news as to whether the transaction
23 had been signed up into a written agreement?
24 A. I believe that was reported to the board at a later date,
25 yes.

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1 Q. And did you learn whether or not the deal was approved by
2 the Court?
3 A. I don't recall the specifics of that report, but I knew
4 the deal had gone forward, so --
5 Q. Did you attend any of the hearings before the Court
6 considering the approval of the deal?
7 A. No.
8 MR. GAFFEY: May I consult for one second, Your Honor?
9 THE COURT: Yes.
10 Q. Sir, you referred, when we talked about an earlier
11 meeting, to the CFO of the -- of LEI. Who was it you were
12 referring to?
13 A. A gentleman named Ian Lowitt.
14 Q. And had you worked with Ian Lowitt prior to the September
15 16th, 2008 board meeting?
16 A. I had both seen him at board meetings and I served on the
17 board of Lehman Brothers Bank, as I mentioned earlier, and Ian
18 Lowitt was chairman of that board for several of the seven or
19 eight years I served on that board, so I knew him reasonably
20 well.
21 Q. Do you recall of Mr. Lowitt participated in the Sunday
22 night board meeting you described where the board decided a
23 bankruptcy filing was necessary?
24 A. I don'5 think he was at that meeting; I think he was at
25 the afternoon meeting.

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1 Q. And when he was at the afternoon meeting, did you observe
2 him? Did you see him?
3 A. Yes.
4 Q. And how did he appear to you?
5 MR. BOIES: Objection, Your Honor.
6 THE COURT: Basis?
7 MR. BOIES: Foundation, conclusion, opinion.
8 THE COURT: Why don't you restate the question?
9 Q. What was Mr. Lowitt's manner at that meeting? Was he --
10 what was his manner at that meeting?
11 MR. BOIES: Same objection, Your Honor.
12 THE COURT: Overruled. It's simply calling for a
13 mental impression, an observation.
14 MR. GAFFEY: Thank you, Your Honor.
15 A. Well, I think my observation would be that as probably was
16 understandable, Ian was under a great deal of pressure and
17 stress. He appeared somewhat disheveled, he had tennis shoes
18 that were untied on, he had blue jeans on. It was on a
19 weekend. But he was clearly under pressure and under stress,
20 in my opinion.
21 Q. Now, did Mr. Lowitt participate in the September 16th
22 meeting as well?
23 A. Yes, I think he was on the phone for that.
24 Q. And did you hear Mr. Lowitt speak when you participated at
25 that meeting?

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1 A. Yes.
2 Q. What did Mr. Lowitt say about the transaction?
3 A. He basically said that the ability to fund our business on
4 a going-forward basis was highly -- he did not think we could
5 fund the business going forward, the -- the New York brokerage
6 company, the broker-dealer.
7 Q. To your knowledge, sir, was that view shared unanimously
8 across the board that there was no way Lehman could survive the
9 day without this transaction?
10 A. I can't speak for the other board members because I don't
11 think I've ever had any conversation of -- particularly since
12 we did vote to go ahead with Barclays. I remember myself
13 feeling that he was probably right that we couldn't rely on
14 traditional sources of funding, but I was not at all sure,
15 given what Commissioner Cox had said Sunday night, that there
16 might not be government funding to keep LBI functioning for a
17 short period of time.
18 Q. And at the end of the day, why did -- to your knowledge,
19 why did -- did you vote in favor of approval of the Barclays
20 transaction?
21 A. I did.
22 Q. Why -- what was your reason for that?
23 A. I felt the break-even, the assets-equal-liabilities
24 structure of the deal minimized downside exposure. I feared
25 that there could be enormous claims from the tens of thousands

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1 of customers who held accounts with LBI. And I felt there were
2 other reasons to support it, including maintaining some portion
3 of the jobs and the businesses that would be preserved under
4 Barclays.
5 Q. Did the view have anything -- did your view that this was
6 a deal that should be approved derive in any part from the
7 description of the structure of the transaction as you'd heard
8 it at the meeting?
9 A. Absolutely.
10 MR. GAFFEY: I have nothing further, Your Honor. I
11 tender the witness to the other movants.
12 Your Honor, may I approach? I think I have a parched
13 witness.
14 THE COURT: Approaching with a bottle of water, yes.
16 THE COURT: Mr. Boies, is -- who's -- oh, you're going
17 to be questioning further?
18 MS. TAGGART: I am, very briefly.
19 CROSS-EXAMINATION
20 BY MS. TAGGART:
21 Q. Good afternoon, Mr. Ainslie. I'm Erica Taggart from Quinn
22 Emanuel Urquhart Oliver & Sullivan on behalf of the creditors'
23 committee.
24 THE COURT: Can I just stop for one second. I'm not
25 trying to interrupt your examination at all, but just so I have

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1 a better understanding as to how this is likely to play out, in
2 terms of presentation. Is it contemplated that each witness --
3 I'm not trying to limit anybody's ability to question, but each
4 witness will be questioned serially, first by LBHI, then by the
5 creditors' committee, and then by the SIPA trustee, to the
6 extent the trustee chooses to become involved? Or is this an
7 exceptional start that we're having here because we're having
8 additional questioning.
9 MS. TAGGART: I think my understanding was that it
10 would -- there would be an opportunity for all three movants to
11 ask questions serially.
12 THE COURT: So there's an opportunity, but it may or
13 may not be exercised.
14 MS. TAGGART: That's correct.
15 THE COURT: All right, fine. Go ahead.
16 Q. I just want to ask about one part of the minutes, so maybe
17 we could bring up the minutes again, that's Trial Exhibit 9,
18 and in particular, page 4. And I'd like to direct your
19 attention to the third paragraph. It starts, "Mr. Ridings".
20 And I want to ask you a question about the first two sentences.
21 It says, "Mr. Ridings of Lazard advised the directors that the
22 applicable standards for this sale under Section 363 of the
23 Bankruptcy Code are to obtain the highest and best price and a
24 price greater than liquidation value. He advised the directors
25 that he believes these tests can be met, but that it will be a

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1 close decision for the bankruptcy court judge." My question
2 for you is do you recall any discussion about that at the
3 meeting, that being that there would be a best price and a
4 price greater than liquidation value?
5 A. I recall the advice that Mr. Ridings gave us. I can't
6 recount for you discussion that pursued -- you know, ensued.
7 Q. Did you have an understanding at the time about what price
8 greater than liquidation value meant in this context when you
9 were voting to approve the sale transaction?
10 A. I don't think we had a clear idea of liquidation value or
11 price, but I think we had a sense that it could be an open-
12 ended negative series of claims on the -- on the estate.
13 Q. And was it your understanding after this discussion and
14 when you voted to approve the sale transaction, that the price,
15 whatever it was that Barclays was paying, was going to be more
16 than a liquidation value?
17 A. Yes, we felt that.
18 MS. TAGGART: That's all my questions.
19 MR. CAPUTO: No questions, Your Honor.
20 THE COURT: All right, Mr. Boies, now it's your turn.
21 MR. BOIES: Thank you, Your Honor.
23 BY MR. BOIES:
24 Q. Good afternoon, Mr. Ainslie. I don't believe we've met,
25 but my name is David Boies, and I represent Barclays in this

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1 transaction, in this case. You understand that?
2 A. I do.
3 Q. Now, you testified that you'd been a director of LBHI
4 since 1996. Were you also a director, at any time, of LBI?
5 A. No.
6 Q. Did you ever have any position with LBI?
7 A. No.
8 Q. You testified that you were told prior to the Sunday board
9 meetings on September 14th that there was a possible prospect
10 of Barclays buying Lehman. Do you recall that?
11 A. Yes.
12 Q. When were you first apprised of the possibility that
13 Barclays would buy Lehman?
14 A. I cannot give you a date.
15 Q. Approximately.
16 A. We probably had somewhere between ten and fifteen board
17 meetings in late August and early September. And there were a
18 number of possible transactions discussed. I would -- I would
19 guess that the date was somewhere in the early September range,
20 those meetings.
21 Q. Okay, now, you testified that there came a time when you
22 were told that that deal was not going forward, correct?
23 A. I did, yes.
24 Q. And then there was a meeting on September 16th in the
25 morning where you were told that there might be a transaction

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1 with Barclays after all, correct?
2 A. Yes.
3 Q. And the transaction that was being considered on September
4 16th was a very different transaction than the transaction that
5 had been considered with Barclays before September 14th,
6 correct?
7 A. Yes, it was.
8 Q. When were you first apprised of the fact that there might
9 be a second transaction with Barclays?
10 A. It's possible, but I cannot recall, specifically, the
11 communication that set up the meeting for the 16th, that that
12 was discussed in the notice of the meeting. I was traveling
13 back to my home that day; I do not recall exactly how I got the
14 communication of that meeting. It's possible at that time
15 there was a conversation about that, but I can definitively say
16 it was the morning of the 16th when we were briefed on the
17 transaction we just discussed.
18 Q. That is, you recall being told about it during the board
19 meeting, and you don't recall one way or the other if you knew
20 about it before?
21 A. That's correct.
22 Q. Now, at the board meeting, you indicated a number of
23 people who were there. Were any of the people who described
24 the transaction people that were actually participating in
25 negotiating the transaction with Barclays, as you understood?

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1 A. Yes, the lead negotiator was Bart McDade, and he was at
2 the meeting for part of the meeting.
3 Q. My question was whether anyone who was participating in
4 the negotiations discussed the structure of the transaction.
5 Did Mr. McDade -- is it your testimony he discussed the
6 structure of the transaction at this meeting?
7 A. I'm sorry, I misunderstood you. I thought you said were
8 they at the meeting. I think McDade participated in the
9 conversation. He was not one of the main presenters.
10 Q. Do you recall anything at all that Mr. McDade said at that
11 meeting?
12 A. Not in specific, no.
13 Q. In general, do you remember anything he said?
14 A. There was general discussion and agreement with the
15 overall structure of the deal that Tom Roberts initially
16 outlined and others reinforced later, and it's my recollection
17 that Bart McDade concurred with that.
18 Q. So it's your recollection that at this meeting, Bart
19 McDade concurred in something that Mr. Roberts had said.
20 A. Perhaps not by saying "I concur," specifically, but it was
21 an open discussion, directors were asking questions, he was
22 answering, and should he have disagreed, there would have been
23 plenty of chances to say so.
24 Q. When you say there was an open discussion and he was
25 answering, do you mean that Mr. McDade was answering questions

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1 of directors at this meeting?
2 A. I think he --
3 Q. Is that your testimony?
4 A. I think he was, yes.
5 Q. And you recognized Mr. McDade's voice because you weren't
6 there; you were on the telephone, correct?
7 A. I knew him well for probably twenty years of his work
8 at --
9 Q. And so it is your testimony here under oath that Mr.
10 McDade, at this meeting, answered questions of the directors as
11 to the nature and structure of the transaction, is that
12 correct?
13 A. That's my recollection.
14 Q. Now, did Mr. McDade say that the transaction was going to
15 be, in your words, a wash?
16 A. I don't recall him saying that.
17 Q. Did Mr. Roberts say that it was going to be a wash?
18 A. As I said earlier, Mr. Roberts described the nature of the
19 transaction as an asset liability -- an asset purchase where
20 the assets and liabilities would equate, would be equal. I
21 don't know that he said the word "wash".
22 Q. Well, let me ask you to look at the book that counsel gave
23 you, and Exhibit -- Movant's Exhibit 9, and he directed your
24 attention to page 4, and I'd like you to turn to page 4 again.
25 A. Yes.

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1 Q. And do you see in the paragraph that he directed your
2 attention to, the one that begins, "Mr. Russo asked for any
3 questions or comments" --
4 A. I do.
5 Q. -- and do you see at the end that it talks about
6 "Barclays' assuming liabilities including employee liabilities
7 and contract cure amounts basically equivalent to the assets.
8 Do you see that?
9 A. I do.
10 Q. And is that what Mr. Russo said, that these assets and
11 liabilities would be basically equivalent?
12 A. The word equivalent was used throughout the meeting. I
13 don't recall, specifically, "basically equivalent" being
14 stated, but that's what the minutes say here.
15 Q. And you had an opportunity to review these minutes,
16 correct sir?
17 A. Subsequently, yes.
18 Q. By the way, when did you first see a copy of the minutes
19 from this meeting?
20 A. I can't tell you. I don't recall. We had subsequent
21 board meetings, and normally we review the minutes before each
22 subsequent board meetings, so I have to think that was probably
23 when, but I can't give you the date of that meeting.
24 Q. When was the next board meeting?
25 A. I don't know.

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1 Q. Approximately.
2 A. There was a telephonic meeting about five or six days
3 later, as I best recall.
4 Q. And after that meeting, when was the next meeting?
5 A. I'm sorry, I can't tell you.
6 Q. Approximately.
7 A. I can't tell you.
8 Q. Within --
9 A. We began meeting regularly with Alvarez, with Bryan
10 Marsal, and I can't recall the exact dates we're talking about.
11 Q. But you would be meeting regularly -- you wouldn't go by a
12 month without meeting, correct?
13 A. That's -- that's correct.
14 Q. How many meetings do you think you had of the board
15 between, say, the time of September 16th and a month later,
16 October 16th?
17 A. Well, as I mentioned, there was a meeting five or six days
18 later; I don't recall the next meeting either, but it probably
19 would have been, you know, within the next month. So maybe the
20 answer might be two --
21 Q. Um-hum.
22 A. -- but I'm -- I haven't looked or researched those
23 numbers.
24 Q. Now, at any of the meetings that took place over the month
25 following September 16th, were you furnished a copy of the

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1 minutes for the September 16th meeting?
2 A. I think I answered I don't recall when I saw the minutes
3 for the first time.
4 Q. Do you recall -- does it refresh your recollection that a
5 month afterwards, you still had not seen a copy of the minutes?
6 A. I don't recall that.
7 Q. Did anybody have any conversations with you about these
8 minutes going through numerous drafts as people tried to put
9 into them things they thought would be helpful later. Did
10 anybody tell you that?
11 A. No one told me that.
12 Q. Would that be consistent with what you think ought to be
13 done in preparing minutes?
14 A. That's speculation. I don't know that that was done.
15 Q. No, but I'm asking you whether, as a member of the board,
16 you would think that was an appropriate thing to do?
17 A. All I know is this generally reflected the meeting, the
18 contents of the meeting that I participated in. It was an
19 accurate description.
20 Q. Well, sir, maybe I can hand out a binder, too. You'll
21 find it contains some drafts of the minutes.
22 A. Thank you.
23 MR. BOIES: And Your Honor, I believe that the
24 exhibits in this binder, Exhibits -- BCI Exhibits 473 --
25 MR. GAFFEY: Excuse me, Your Honor, I don't mean to

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1 interrupt, but could I have a copy of the binder?
2 MR. BOIES: Oh, it's coming. I apologize.
3 -- that the exhibits that are in this binder, I
4 believe, are exhibits as to which the movants have no
5 objections, and I would, therefore, offer at this time BCI
6 Exhibits 473, 765, 766, 770, 771, 773, and 789.
7 THE COURT: Is there any objection to the admission of
8 these exhibits?
9 MR. GAFFEY: No objection, Your Honor.
10 THE COURT: Does that apply to everybody else?
11 MR. CAPUTO: No objection, Your Honor.
12 THE COURT: Okay, they're admitted.
13 (Various drafts of minutes of September 16th Lehman board
14 meeting were hereby received into evidence as BCI's Exhibit
15 473, 765, 766, 770, 771, 773, and 789, as of this date.)
16 Q. Mr. Ainslie, would you turn to tab 2, which is BCI Exhibit
17 771. And I want you to turn to page 7 of these draft minutes.
18 And in particular, I want to focus on the paragraph that is a
19 draft of the paragraph we've just been talking about, the one
20 that begins, Mr. Russo asks for any questions or comments.
21 A. I see that.
22 Q. And I want to direct your attention to the last sentence
23 there, and you again see the same language that I directed your
24 attention to before, talking about with Barclays assuming
25 liabilities basically equivalent to the assets, do you see

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1 that?
2 A. I do.
3 Q. And there, it says that the liabilities that Barclays is
4 assuming is sixty-four billion dollars, and the assets that
5 Barclays is getting is seventy billion dollars. Do you see
6 that, sir?
7 A. I do.
8 Q. Was that said at the meeting, sir?
9 A. The rest of the sentence was said, which was "plus
10 assuming employee compensation liabilities and contract cure
11 liabilities.
12 Q. Do you have my question, sir? My question is whether at
13 the meeting that you attended, that you've testified about, you
14 were told that Barclays was assuming liabilities of sixty-four
15 billion dollars and getting assets of seventy billion dollars.
16 Were you told that, sir, at that meeting?
17 A. As I said earlier, I do not recall the numbers that were
18 used in the meeting; this is nineteen months or so ago. I do
19 recall the statement I made earlier.
20 Q. Are these numbers in any way inconsistent with what you
21 were told at the meeting?
22 A. The assets were supposed to equal the liabilities. So
23 you're asking me do the employee cure -- employee compensation
24 and cure amounts equal six billion because that would be what
25 would be required for this to be what I was told at the

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1 meeting.
2 Q. You say cure amounts. This doesn't say anything about
3 cure amounts right here, does it, sir?
4 A. That's what I was told at the meeting.
5 Q. I'm asking whether what is written in these draft minutes
6 is or is not inconsistent with what you claim you were told at
7 this meeting. Can you answer that question, sir?
8 A. I, you know, this is not precisely what I was told in the
9 meeting.
10 Q. My question, sir, is whether it is inconsistent with what
11 you were told at the meeting?
12 A. I think the answer is it is inconsistent in the -- in the
13 definition of assets equal liabilities.
14 Q. Now, do you have any explanation for how something that is
15 inconsistent, as you say, with your testimony as to what
16 happened in this meeting found its way into these draft minutes
17 prepared by LBHI?
18 A. I don't know who wrote these or how they put them
19 together, no.
20 Q. Okay, let me ask you to look at tab 3, Exhibit 473. This
21 is another draft of the minutes. And I'd like you to look at
22 page 5. And do you see there another draft of the paragraph
23 we've been talking about, do you see that?
24 A. Yes.
25 Q. And you again see the language with Barclays assuming

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1 liabilities of sixty-four billion dollars, basically equivalent
2 to the assets of seventy billion dollars, plus assuming some
3 employees and accounts. Do you see that?
4 A. I do.
5 Q. And although there were other edits that have occurred,
6 that portion has not been edited, correct? That's the same as
7 the one we saw in the previous draft?
8 A. I believe so.
9 Q. I'm sorry?
10 A. I believe that's correct.
11 Q. Okay, now let me ask you to look at tab 4, BCI Exhibit
12 765. And I'd ask you to turn to page 4. And again, although
13 some changes have been made to these draft minutes, the
14 provision that I've been directing your attention to that has
15 the sixty-four billion dollars and the seventy billion dollar
16 figure in it has not been changed, correct?
17 A. That has not been changed.
18 Q. Now, let me ask you to look at tab 5, BCI Exhibit 766.
19 And go to page 7. And do you see again, first full paragraph
20 on the page, another draft of Mr. Russo's paragraph that we've
21 been talking about?
22 A. Yes, I see that.
23 Q. And you see in this draft as well, you have the reference
24 to the sixty-four billion liability estimate and the seventy
25 billion dollar asset estimate, correct?

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1 A. I consider employee, whatever the statement it means, to
2 be liabilities at the end of the sentence. So I don't consider
3 it to be sixty-four billion of liabilities.
4 Q. Well, what it says here is that Barclays is assuming
5 liabilities of sixty-four billion dollars, basically equivalent
6 to the assets of seventy billion, plus assuming some employees
7 and accounts, correct?
8 A. That's what it says.
9 Q. Okay. And that's the same language that we've seen in all
10 the prior drafts we've looked at, right?
11 A. Yes.
12 Q. Now, would you turn to tab 6, BCI Exhibit 770, page 7? Ad
13 do you see the same language in this draft as well?
14 A. I do.
15 Q. And if you turn to tab 7, BCI Exhibit 773, and turn to
16 page 5, at the top of the page, first full paragraph, do you
17 see that exact same language again, in this draft?
18 A. Yes.
19 Q. Now would you turn to tab 8, BCI Exhibit 789. This is
20 another draft of the minutes. This one has a cover e-mail,
21 correct, sir?
22 A. I haven't seen this before, but it -- I guess that is a
23 cover e-mail.
24 Q. Yes, and the cover e-mail is dated October 28, 2008,
25 correct sir?

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1 A. Yes.
2 Q. This is a month and over a week since the September 16th
3 meeting, correct?
4 A. Yes.
5 Q. And this is minutes being sent around including to lawyers
6 for further review, correct?
7 A. Appears to be sent to Rod Miller; I don't know if it was
8 sent around.
9 Q. Well, do you see it was sent to Tom Roberts, up in the
10 right-hand corner?
11 A. Oh, I'm sorry, I was looking at "forwarded by". Okay.
12 Yes, now I see it.
13 Q. And you know he's a Weil, Gotshal partner, correct?
14 A. Yes, he is.
15 Q. And sent to Lori Fife, another Weil, Gotshal partner,
16 correct?
17 A. Yes.
18 Q. Now, turn to page 4, and the third full paragraph on that
19 page, do you see, again, the same language that we've been
20 talking about with Barclays assuming liabilities of sixty-four
21 billion dollars, basically equivalent to the assets of seventy
22 billion dollars, plus assuming some employees and accounts.
23 You see that, sir?
24 A. Yes, yes, sir.
25 Q. Now, you have said a number of times that the employees

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1 and the accounts that were here, you thought, related somehow
2 to liabilities. Did I understand you right?
3 A. Yes.
4 Q. Okay, now, what were the accounts that were referenced
5 here?
6 A. I don't know.
7 Q. Were they accounts at places like OCC and DTC, is that the
8 accounts that were being referenced?
9 A. I don't know the -- what's being referred to by
10 "accounts".
11 Q. You do know that Lehman had various exchange-traded
12 derivative accounts that had margins; you know that from your
13 service as a director, correct?
14 A. I'm certainly aware of that activity, that business
15 activity, yes.
16 Q. Is that the accounts that were being talked about here?
17 A. I have to repeat, I don't know.
18 Q. Did you ever ask?
19 MR. GAFFEY: Objection. Foundation.
20 Q. Did you ever ask at this September 16th board meeting?
21 THE COURT: Okay, the objection's mooted by the
22 modification of the question.
23 MR. GAFFEY: Thank you.
24 A. I don't recall asking about accounts at this meeting.
25 Q. Now, it also talks about assuming some employees. Did you

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1 understand that Barclays wanted to assume the employees?
2 A. Yes.
3 Q. Did you understand why that was important to Barclays?
4 A. It was important to continuing the businesses.
5 Q. And did you believe that Barclays considered assuming
6 those employees to be a liability or an asset to Barclays?
7 A. I can't assume what Barclays assumed. I know what we were
8 told, which was they were assuming obligations with regard to
9 those employees.
10 Q. They were assuming obligations for those employees, but
11 they were also getting the employees, correct, sir?
12 A. Yes.
13 Q. And did you have any understanding on September 16th as to
14 whether Barclays thought that the net of all that, getting the
15 employees with whatever obligations were there, was an asset
16 for Barclays or a liability for Barclays? Did you have an
17 understanding about that?
18 A. Yes.
19 Q. And from whom did that understanding come?
20 A. I think from Tom Roberts, initially, and others throughout
21 the conversation at the board meeting where it was discussed
22 that they were going to assume obligations to pay those
23 employees, should they be terminated, and pay those employees
24 accrued bonus obligations.
25 Q. My question, sir, and I want to -- maybe I'm not being

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1 clear -- is I understand that you've said that Barclays was
2 assuming obligations with respect to employees.
3 A. Right.
4 Q. I understand that you've said that Barclays wanted to get
5 the employees because the employees were valuable to Barclays,
6 correct?
7 A. Yes.
8 Q. Now my question is whether you had an understand as to
9 whether the net effect, as far as Barclays was concerned, the
10 net effect of getting the employees, which was a good thing,
11 compared to the effect of having obligations to those
12 employees, which might be a liability, was that net, after
13 taking both of those into account, something that Barclays
14 thought was an asset or a liability.
15 MR. GAFFEY: Objection.
16 THE COURT: Basis for the objection?
17 MR. GAFFEY: Foundation. It goes to Barclays' state
18 of mind.
19 THE COURT: It does go to Barclays' state of mind.
20 Sustained.
21 Q. Did you have an understanding, Mr. Ainslie, at the
22 September 16th board meeting, whether Barclays believed that
23 the combination of the advantage of having the employees and
24 the possible disadvantage of having obligations to those
25 employees, whether the net of that was considered by Barclays

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1 to be an asset or a liability, a positive or a negative.
2 MR. GAFFEY: Same objection, Your Honor.
3 MR. BOIES: I'm here only asking for the witness's
4 understanding at the board meeting.
5 THE COURT: If it's only his understanding, he can
6 certainly say that he either had one or he didn't have one, and
7 if he didn't have one, he can say that.
8 A. I did not have an understanding of Barclays' view of that
9 issue.
10 Q. One way or the other?
11 A. One way or the other.
12 Q. And you never asked anybody at the meeting on September
13 16th what Barclays' understanding was, did you?
14 A. No.
15 Q. In fact, at that meeting, neither you nor any other member
16 of the board of directors ever asked what Barclays'
17 understanding was of the transaction at all, correct?
18 A. We were the Lehman board and we were asking the questions
19 about Lehman's position. And I don't recall anyone asking
20 about what Barclays' point of view was.
21 Q. Okay. Now, let me go back to the book that your counsel
22 gave you, and I want to go back to Movant's Exhibit 9. And
23 counsel, I believe it was for the committee, directed your
24 attention to pages 6 and 7 of these minutes where the
25 resolution authorizing the asset purchase agreement is; do you

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1 see that?
2 A. I do.
3 Q. And I believe you testified that this accurately reflected
4 what the board had approved on September 16th, correct?
5 A. Yes, the resolution on the next page which references the
6 lawyers' description of it incorporates the outline I gave
7 earlier.
8 Q. Um-hum. Now, if you look at the second paragraph, the
9 resolved paragraph, do you see that?
10 A. I do.
11 Q. It says "resolve that each authorized officer of LBHI is
12 individually authorized, empowered" and it goes on with some
13 lawyer language "to negotiate, prepare, execute and deliver the
14 asset purchase agreement substantially in accordance with the
15 material terms described to the board of directors by counsel
16 on the date hereof". Do you see that?
17 A. Yes, sir.
18 Q. And then it goes on to say, "with such changes, additions,
19 and modifications thereto as such authorized officer shall deem
20 necessary and appropriate." Do you see that?
21 A. Yes.
22 Q. Who was the authorized officer?
23 A. I think that Bart McDade was authorized to negotiate the
24 agreement.
25 Q. Okay, and was it your understanding that Mr. McDade, as

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1 the authorized officer, could make such changes, additions, and
2 modifications to the asset purchase agreement as he deemed
3 necessary or appropriate?
4 A. As long as it was substantially in accordance.
5 Q. Well, it says "substantially in accordance with the
6 material terms ... with such changes, additions, and
7 modifications", correct, sir? That's what it says here.
8 A. Right.
9 Q. Did you see this resolution at the board meeting?
10 A. It's my recollection that we did see this resolution.
11 Q. At the board meeting?
12 A. Yeah, we either saw it or it was read to us. I cannot
13 recall.
14 Q. And either way, you approved it?
15 A. Yes, we did.
16 Q. Everything you know about the asset purchase agreement
17 comes from what you learned at that meeting on September 16th,
18 correct?
19 A. Yes, that's correct.
20 Q. That is, you didn't receive any materials before, you
21 didn't receive any materials afterwards, is that correct?
22 A. I never saw the asset purchase agreement --
23 Q. And you never saw the asset purchase agreement itself,
24 correct?
25 A. Correct.

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1 Q. And you never asked to see it, correct?
2 A. I would not have considered it appropriate.
3 Q. Do you know if whether there were any changes made to the
4 asset purchase agreement after September 16th?
5 A. It was my understanding, as we discussed earlier, that it
6 was still in formation at that time. I don't think it even
7 existed on September 16th.
8 Q. Do you know whether there were any changes to what you
9 refer to as the structure of the deal after September 16th?
10 A. I believe there were, but we were never notified as a
11 board.
12 Q. You were never notified as a board of the changes?
13 A. No.
14 Q. When did you first find out that there'd been these
15 changes?
16 A. At some point in late '08, Bryan Marsal reported to the
17 board that there were issues with the transaction that were
18 being fully investigated by Alvarez & Marsal. I believe it was
19 in late '08; it may have been early '09 at a board -- at a
20 telephonic board call. He advised us of this.
21 Q. Did he tell you what the issues were?
22 A. Not in detail, but that there were questions about whether
23 the assets conveyed were -- were the appropriate -- the
24 appropriate level.
25 Q. I know it's been a while since late '08 or early '09 --

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1 A. Right.
2 Q. -- but can you tell me as best you can, sitting here under
3 oath, when that first conversation occurred when you were told
4 that there were some changes to the structure of the APA
5 agreement that you'd approved?
6 A. The answer is no, I cannot tell you. I don't know the
7 date.
8 Q. Approximately, your best approximation.
9 A. I think I just gave it to you. It was either late '08 or
10 early '09.
11 Q. And until -- and when you say late '08, are you talking
12 about December? November?
13 A. Somewhere in that range, November, December, or early '09.
14 Q. Now, when you were told that there had been these changes
15 to the basic structure of the APA after September 16th, were
16 you surprised?
17 A. Yes.
18 Q. Did you ask why those changes were made?
19 A. It was presented as a work-in-progress by Bryan, and there
20 were not a lot of questions asked, and I did not ask questions.
21 Q. Okay, so you didn't ask at that time, why there had been
22 changes to the basic structure of the APA that you approved on
23 September 16th, is that your testimony?
25 Q. Did there ever come a time when anybody told you or you

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1 asked why there had been some basic changes, or these changes
2 to the basic structure of the APA that you had approved on
3 September 16th?
4 A. We were, as I said --
5 MR. GAFFEY: Your Honor, can I ask, for privilege
6 issues, given that there's no time period on that, that the
7 witness first answer yes or no so I can watch for privilege a
8 bit more carefully?
9 MR. BOIES: I support that request, Your Honor.
10 THE COURT: Fine. How are you supporting that?
11 MR. BOIES: That I would ask yes or no answers to yes
12 or no questions.
13 THE COURT: While we're at a pause, and I -- I'm just
14 noting that it's getting deeply into our lunch hour, I'm
15 wondering if we're close to concluding the cross or whether or
16 not there's going to be some extensive additional examination.
17 MR. BOIES: Your Honor, I think this would be a good
18 time to break.
19 THE COURT: Why don't we do that, then. And this is
20 the first time that we're breaking with a witness who is in the
21 midst of cross-examination, and I think the understanding is
22 that the "rule" applies, namely that counsel for the movants,
23 frankly, counsel for anyone or any other party, shall not
24 engage the witness in any discussion as to the substance of his
25 testimony, either testimony that's been given or testimony that

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1 might be given. That doesn't mean that he's in isolation. He
2 can talk about the rain that's outside, assuming it's still
3 raining, or his personal needs, whatever they may be. But he's
4 otherwise to be in a cone of silence with respect to the
5 subject matter of his testimony.
7 THE COURT: And that is, I think, at least my --
8 today's articulation of the rule, which I think is well
9 understood by litigators and will apply to not only this
10 witness but to any other witness throughout the course of the
11 hearings.
12 And we're adjourned until 2 o'clock.
14 (Recess from 12:54 p.m. until 2:04 p.m.)
15 THE COURT: Please be seated. I don't see the
16 witness.
17 MR. GAFFEY: He's coming.
18 MR. BOIES: Your Honor, while the witness is taking
19 the stand, counsel and I agreed that subject to the Court's
20 views, obviously, that we would not invoke the rule in terms of
21 excluding new witnesses. We obviously are going to apply the
22 rule the Court talked about in terms of not talking to a
23 witness while they're on the stand, but with respect to the
24 other so-called rule that witnesses should not be in the
25 courtroom while another witness is testifying, if it's

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1 acceptable to the Court --
2 THE COURT: It's perfectly acceptable.
3 MR. BOIES: -- we would not impose that.
4 THE COURT: I was simply dealing with a lunch break
5 while cross-examination was in process.
6 MR. BOIES: All right, thank you, Your Honor.
7 THE COURT: Which I think, by the way, is a good rule.
8 MR. BOIES: We all agree on that, Your Honor.
9 THE COURT: Fine.
10 RESUMED CROSS-EXAMINATION
11 BY MR. BOIES:
12 Q. Mr. Ainslie, let me direct your attention to the question
13 that was pending when we broke which, as your counsel
14 indicates, is a yes or no question.
15 Did there ever come a time when you asked why there had
16 been the changes to the basic structure of the APA that you had
17 approved on September 16th that you indicated had been made?
18 A. No.
19 Q. Did there ever come a time when anybody told you why there
20 had been basic changes to the structure of the APA that you had
21 approved on September 16th?
22 A. I think I'd have to say yes to that.
23 Q. When was the first such time?
24 A. When Bryan Marsal told us that there was a discrepancy.
25 Q. And that would have been late 2008, early 2009, is that

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1 correct?
2 A. Yes.
3 Q. And as you sit here now, you can't place it any more
4 precisely than that, correct?
6 Q. And you were told this on a telephone call, correct?
7 A. I believe it was a telephonic board meeting, yes.
8 Q. Okay, I want to go back and clear up one thing. If you
9 would look at Movant's Exhibit 9, which is in the binder your
10 counsel gave you. And look on page 7. You'll recall that the
11 second resolve clause, we talked about how the authorized
12 officer was authorized to "negotiate, prepare, execute and
13 deliver the APA substantially in accordance with the material
14 terms described to the board of directors by counsel with such
15 changes, additions, or modifications thereto as such authorized
16 officers shall deem necessary or appropriate." Do you recall
17 that language?
18 A. I do.
19 Q. Now, there's a reference there to counsel, and counsel as
20 it was used in this resolution, was a defined term meaning the
21 Weil, Gotshal firm and the Simpson Thacher firm, correct?
22 A. You're saying our general counsel of Lehman doesn't fall
23 under that definition?
24 Q. I'm saying that exactly, sir. But more at the point, I'm
25 asking you whether isn't that so?

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1 A. I have to be honest. I'm not a lawyer, and I don't know
2 that that was a defined term. I didn't see it defined
3 elsewhere.
4 Q. Well, sir, look at the paragraph right above, where it's
5 talking about the terms being described to the board of
6 directors by its legal counsel --
7 A. Right.
8 Q. -- Weil and Simpson, and then it says, Simpson, together
9 with Weil, "counsel". Do you see that?
10 A. I do see that.
11 Q. And does that refresh your recollection that when you
12 approved this resolution, the counsel that was referred to as
13 having described the material terms to the board of directors
14 that people were directed to implement were the outside
15 counsel, Weil, Gotshal and Simpson Thacher?
16 A. Yes.
17 Q. Thank you. Now, you've seen how the minutes used the term
18 "basically equivalent". You, at one point in your testimony,
19 used the word "equal". Now, am I correct that as you sit here
20 now, you don't recall whether at the board meeting the term was
21 "equal" or "basically equivalent" or some other similar term,
22 correct?
23 A. I recall assets equaling liabilities being the
24 description.
25 Q. Well, sir, let me ask you to look at your deposition, page

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1 89. And I direct your attention particularly to lines 18
2 through 24.
3 A. Hold just a second, if you will.
4 Q. And at the very top, just for context, at line 4, you say
5 in your deposition what you've said here: "We were told the
6 assets equal the liabilities." Do you see that?
7 A. I do.
8 Q. And then down at line 18, I ask you, question: "We're
9 seeing language in these notes that use the term 'basically
10 equivalent'. Is it your testimony that you specifically
11 remember that the word 'equal' was used as opposed to
12 'basically equivalent'?" Answer: "I can't recall the
13 discussion to that level of precision." Do you see that, sir?
14 A. I do see that.
15 Q. And was that accurate and truthful testimony at the time
16 you gave it?
17 A. It was.
18 Q. And is it accurate and truthful testimony today?
19 A. Yes.
20 Q. Now, whether the term is "equal" or "basically equivalent"
21 or something else, what was your understanding as to what value
22 was going to be used in making that basic equivalence?
23 A. It was not a board matter that was discussed.
24 Q. Well, when did you understand the assets were going to be
25 valued?

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1 A. We knew there was urgency to close this deal within a
2 matter of a very few days, and presumably within that time
3 frame.
4 Q. On September 16th, did you think the assets had already
5 been valued or were going to be valued later?
6 A. As a member of the audit committee of Lehman, I presumed
7 they were valued currently. Marks were done on a regular, you
8 know, very current basis.
9 Q. And indeed, as a member of the audit committee of Lehman,
10 you were responsible for making sure that Lehman's marks were
11 accurate and up to date, correct?
12 A. No.
13 MR. GAFFEY: Objection, calls for a legal conclusion.
14 THE COURT: I don't think so. I think he knows what
15 he was responsible for as a member of the committee. I
16 overrule that.
17 A. Can you repeat the question?
18 Q. Yes, as a member of Lehman's audit committee, you were
19 responsible for overseeing and making sure that Lehman's marks
20 were accurate and up to date, correct?
21 A. As a member of the audit committee, we were responsible
22 for reviewing the process by which marks were established. And
23 we did. And it was management's job to mark assets
24 appropriately, and Ernst & Young's job to report to us if there
25 were indiscrepancies (sic). So I would say the answer is no.

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1 Q. So if Ernst & Young didn't report any discrepancies to
2 you, you didn't think you had any responsibility for checking
3 management, is that correct?
4 A. No, I didn't say that.
5 Q. Well, did you think you had a responsibility for checking
6 management in the marks that they were putting on Lehman's
7 assets, even if Ernst & Young didn't complain to you?
8 A. We had a robust 140-person internal audit function at
9 Lehman who reported at every audit committee meeting, and we're
10 always asked in executive session were there any discrepancies
11 between management and their assessment, so there was a
12 continuous checking.
13 Q. Did it ever come to your attention that there was any
14 concern about the accuracy or up-to-dateness of Lehman's marks?
15 A. Not in a -- no, not in an audit committee function.
16 Q. Well, whether it's in an audit committee function or not,
17 in your function as a member of the audit committee, you take
18 into account information that you receive even if it doesn't
19 come in an audit committee meeting, right?
20 A. I take official information from management and our
21 advisors. I don't take press coverage seriously.
22 Q. Let me just be sure I understand what you're saying. Are
23 you saying that there was press coverage that suggested there
24 was something the matter with Lehman's marks?
25 A. I saw such and -- and attributed to buyers' views.

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1 Q. And when you saw that, did you make inquiry about whether
2 those concerns were valid?
3 A. As I already said, we met with both internal financial
4 staff, internal audit staff, and external auditors on a regular
5 basis and challenged both the process and the accuracy and
6 asked them -- we did not go into marks, mark-by-mark -- but we
7 asked them about the accuracy of marks.
8 Q. Let me be sure my question's clear. There came a time
9 when you were aware from published reports that people were
10 questioning Lehman's marks, correct?
11 A. From newspaper reports, yes.
12 Q. And at that time, did you go as a member of the audit
13 committee and try to find out whether those concerns were valid
14 or not? Did you do something special as a result of being
15 aware of these press reports?
16 A. We did what I said. We asked management through the form
17 of internal audit, the financial staff, and then, secondly,
18 external audit function if the marking process was accurate.
19 Q. So -- and by the external people, you're talking about
20 Ernst & Young, correct?
21 A. Yes.
22 Q. And so it's your testimony that when you received these
23 press reports, you asked Ernst & Young to check out whether
24 those press reports were accurate. Is that what you're
25 testifying to?

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1 A. That's part of what I testified.
2 Q. Okay, that's part of what you did, correct?
3 A. Yes.
4 Q. And did Ernst & Young come back and report to you, as a
5 member of the audit committee?
6 A. Yes.
7 Q. And what did they say?
8 A. They said there was no significant discrepancy in the
9 marks.
10 Q. Did they say there was discrepancy, but it wasn't
11 significant?
12 A. There was no material issue with regard to marks and
13 nothing that was an audit issue.
14 Q. And when did they tell you that, sir?
15 A. We had a very in-depth review of the mark-to-market
16 process sometime in the summer of '08, I believe. And then as
17 I said, at every audit committee meeting, we had executive
18 sessions with Ernst & Young and internal audits where those
19 same questions were asked.
20 Q. Did anyone ever tell you in this process that you've
21 described that there were certain assets on Lehman's books that
22 had not, as of September, been remarked since June 30th?
23 A. No.
24 Q. Did anybody tell you that there were a number of assets on
25 Lehman's books on September 16th that had not been remarked

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1 since August?
2 A. No.
3 Q. If those things were true, that would surprise you a lot,
4 right?
5 A. You're asking me about a large, diverse --
6 Q. A significant -- a significant, material amount of assets.
7 If you found that a material amount of Lehman's assets had not
8 been remarked between August and September 16th, would that
9 have surprised you?
10 A. If it were illiquid assets that did not have a free -- a
11 ready market, that might not surprise me. If it were liquid
12 assets that had a quotable market, it would surprise me.
13 Q. And did Lehman have illiquid assets that did not have a
14 ready market?
15 A. Absolutely.
16 Q. And did it have a lot of those assets?
17 A. It had some.
18 Q. What?
19 A. It had some.
20 Q. Oh, I know it had some, but it had a lot of them, didn't
21 it?
22 A. That's -- that's a matter of judgment. I --
23 Q. Well --
24 A. I'll just say that we had some and they were all reported.
25 Q. Well, your judgment, sir, how much of Lehman's assets, as

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1 of September 16th, were illiquid without a ready market?
2 A. I can't give you a percentage.
3 Q. Approximately.
4 A. I -- that's calling for a recollection that I can't give
5 you, exactly.
6 Q. Was it more than a third, sir?
7 A. I don't think it was more than a third.
8 Q. Was it more than a quarter?
9 A. It probably was in that range.
10 Q. Between a quarter and third?
11 A. Maybe.
12 Q. That would be your best recollection as you sit here now?
13 A. I -- I -- given that you're giving me no choice but to put
14 a number on it, that's what I'm saying.
15 Q. Did you understand that those illiquid assets, whatever
16 the amount, that had not been remarked for quite a while, would
17 have to be revalued for purposes of the Barclays transaction?
18 A. No, we did not go into the depth of what assets were
19 included.
20 Q. Did you understand that some of the assets that were being
21 included in the Barclays transaction were illiquid assets?
22 A. Frankly, no. We did not discuss the nature of the assets
23 that were included.
24 Q. And you did not discuss when those assets had been or
25 would be valued, is that correct?

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1 A. Not at the board meeting.
2 Q. And indeed, the only time you had any discussions about
3 this was at the board meeting, correct?
4 A. About the assets in this sale?
5 Q. Yes.
6 A. Yes.
7 Q. Or about the APA at all, correct?
8 A. We didn't discuss the APA in any -- at any time. The APA
9 was a document; we approved a deal structure.
10 Q. And the deal structure that you approved, the only time
11 you talked about that deal structure was at that September 16th
12 board meeting, correct?
13 A. Yes.
14 Q. Now, when you expected the assets and the liabilities to
15 be, in the words of the Lehman minutes, basically equivalent,
16 was that based on liquidation value?
17 A. Again, management was to put the deal together. We
18 approved the outlines of the deal, the framework of the deal,
19 and the way in which they valued the assets was to be
20 implemented by management.
21 Q. For example, if you go back to Movant's 9, and I want to
22 direct your attention to the third paragraph on page 4. This
23 is the paragraph that counsel for the committee, I think,
24 directed your attention to. It's talking about what Mr.
25 Ridings of Lazard advised you. Do you see that?

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1 A. Right.
2 Q. And he advised you that you should obtain "the highest and
3 best price and a price greater than liquidation value". Do you
4 see that?
5 A. I do.
6 Q. And as you understood it, when you say you were told that
7 assets and liabilities were to be basically equivalent, was the
8 value of the assets being calculated based on the liquidation
9 value?
10 A. As I said earlier, the method of valuation was not
11 discussed with the board. That was a management
12 responsibility.
13 Q. Did you, as a director, have any understanding one way or
14 the other as to whether Lehman's assets, for purposes of the
15 Barclays transaction, were being valued on a liquidation value
16 basis?
17 A. No.
18 Q. Okay, now, is the term "fair market value" a term that
19 you're familiar with?
20 A. I am, yes.
21 Q. And would the fair market value of an asset, at least in
22 some circumstances, be materially different from its
23 liquidation value?
24 A. It's theoretically possible.
25 Q. Now, did you or the board give any consideration as to

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1 whether management should be instructed to try to use fair
2 market value as opposed to liquidation value, or vice versa?
3 A. No, we did not.
4 Q. Were you aware of whether or not, as of September 16th,
5 there were any disagreements between Barclays and Lehman as to
6 how to value the assets that were going to be subject to the
7 transaction?
8 A. No.
9 Q. Based on all your experience in business, did you expect
10 it would be likely in a transaction of this size, there would
11 be such disagreements?
12 A. It's, you know, again, we set out the rules for management
13 and they were asked to implement equivalency, as you put it --
14 as the minutes put it.
15 Q. Did you ever ask anybody at this meeting whether or not
16 there was any disagreement as to what the value of the assets
17 were?
18 A. I don't recall that being asked, no.
19 Q. I think I, therefore, know the answer to this question,
20 but I want to ask it anyway, just to be sure. Am I correct
21 that you would not have had any discussion about how any
22 disagreements would be resolved, if they existed.
23 A. You're correct.
24 Q. Did you have any understanding, one way or the other, as
25 to whether the size of the portfolio was going to be taken into

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1 account in valuing Lehman's assets?
2 A. No, we did not consider that.
3 Q. And you didn't ask anybody whether that was going to be
4 taken into account, is that correct?
5 A. Yes, that's my recollection.
6 Q. Now, you were aware that the week of September 15th was a
7 week of chaos and turmoil, both for Lehman and for the
8 financial markets, correct?
9 A. Yes, I was rather aware of that.
10 Q. And you were aware that the value of Lehman's assets was
11 changing, even over the course of that week, correct?
12 A. I knew it was a volatile time, yes, and asset values were
13 changing.
14 Q. And while there may have been some assets that went up, in
15 the main, Lehman's assets were declining, the value was
16 deteriorating, correct?
17 A. You know, there were less liquid assets and there were
18 more liquid assets, and the more liquid assets held their value
19 better.
20 Q. Yes, but overall, the total value of Lehman's assets was
21 declining materially over the course of that week of September
22 15th, correct?
23 A. I would say it declined.
24 Q. And indeed, I think Mr. Ridings told you it was
25 deteriorating, correct?

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1 A. I think he did.
2 Q. As you understood it, were there any representations or
3 warranties in the APA concerning the value of the assets or
4 liabilities?
5 A. No. I'm saying no because I did not see or study that
6 document, so I -- I don't know that there were or weren't.
7 Q. As you understood it on September 16th when you were at
8 the board meeting, did you believe that there would be
9 representations and warranties concerning the value of the
10 assets and liabilities that were the subject of the
11 transaction?
12 A. You're asking for my knowledge of a negotiated agreement
13 to sell a major assets of a broker-dealer, and I don't have
14 that knowledge. All I know is what we approved as a board and
15 gave to management as guidance.
16 Q. But my question is about that guidance. Did you think
17 that you were giving management guidance, one way or the other,
18 about whether to have representations and warranties about the
19 value of the assets and liabilities that were the subject of
20 the APA transaction?
21 A. We did not give any guidance to them on reps and
22 warranties, no.
23 Q. Did you consider the point at all at the board meeting?
24 A. No, not to my recollection.
25 Q. Now, if you had been doing this deal, you would have had a

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1 true-up clause, correct?
2 MR. GAFFEY: Objection, calls for speculation, Your
3 Honor.
4 THE COURT: Well, it sure is. If you had been doing
5 this deal -- Mr. Boies, I respectfully suggest you rephrase
6 that question because in some capacity, he was doing this deal.
7 He's a board member; you've asked him a whole bunch of
8 questions about his role. So he's clearly in the deal. So the
9 question makes no sense.
10 MR. BOIES: Your Honor, I withdraw the question. And
11 let me try to rephrase it.
12 Q. Let me ask you to look at your deposition at the bottom of
13 page 86, line 24, and the top of page 87. And I'm asking
14 you -- or, I'm not asking. Actually, Mr. Thomas is asking you,
15 but we're asking you at the bottom of page 86 whether you would
16 consider a difference between sixty-nine billion and seventy
17 billion to be a wash, and at line 6 you answer, "If I were
18 doing this deal, I would have had a true-up clause where you
19 figure out what the actual assets are, and the actual
20 liabilities are after a period of time, and you equate them. I
21 understand that that was not part of this agreement." Do you
22 see that?
23 A. Which page are you on? 88?
24 Q. I'm on page 87, lines 6 to 10.
25 MR. GAFFEY: Your Honor, for completeness, can we have

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1 lines 11 through 18, as well?
2 MR. BOIES: Yes.
3 THE COURT: Let's do that or let's leave it for
4 redirect, but it's probably better to do it now.
5 MR. BOIES: Okay. I will read it now, and then I will
6 come back because I was planning to take it in two chunks.
7 Q. The next section says: "Did you ever think that was part
8 of this agreement?
9 "A. I didn't see the agreement, as I said, so I didn't know
10 what was actually part of it.
11 "Q. Slightly different question: did you ever think a true-up
12 clause was part of the agreement?
13 "A. It was never discussed, so I can't opine as to whether I
14 thought it or not."
15 A. I'm sorry, I'm having trouble where you -- give me the
16 line and page you're reading?
17 Q. Sure. Start on page 86.
18 A. Right.
19 Q. And you see at the bottom -- and this is for context
20 purposes, the question is whether you would consider a
21 difference between seventy and sixty-nine billion dollars to be
22 a wash. Do you see that?
23 A. Right.
24 Q. And then lines 6 through 10, the answer is "If I were
25 doing this deal, I would have had a true-up clause where you

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1 figure out what the actual assets are, and the actual
2 liabilities are after a period of time, and you equate them. I
3 understand that that was not part of this agreement." Do you
4 see that?
5 A. I do.
6 Q. Now, as the Court indicates, you were, as a member of the
7 board, doing this deal. Did it ever occur to you to ask
8 management to include a true-up clause?
9 A. I had a -- the answer is no. I had a great deal of
10 confidence in management, and they were sophisticated deal
11 structurers.
12 Q. Was it your expectation on September 16th when you were
13 approving this deal that management would include a true-up
14 clause?
15 A. It was my expectation that assets would equal liabilities,
16 and that whatever was needed to make that happen would be
17 included. And there are other ways that it could've been done,
18 not just a true-up clause.
19 Q. Are you telling me that you can think of a way to
20 accomplish it without using a true-up provision?
21 A. I think there probably are.
22 Q. But you can't think of it, can you, sir?
23 A. I can think of others, yes.
24 Q. I'm sorry?
25 A. From other business experience, I can --

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1 Q. You can think of how to accomplish equality of assets and
2 liabilities in this Barclays transaction without a true-up
3 clause, is that what you're telling me?
4 A. I said yes.
5 Q. Let me -- when did you think of these other ideas? Has it
6 been since your deposition?
7 A. I discussed the true-up in my deposition, and it was
8 certainly after the deal was -- was approved by the board.
9 Q. Let me show you page 88, the very next page. Lines 12
10 through 18, question: "Can you think of a way to accomplish
11 it?" And the "it" is the equivalence of assets to
12 liabilities, correct, sir?
13 A. I think so, yes.
14 "Q. Can you think of any say to accomplish it without the use
15 of a true-up provision, which you mentioned?
16 "A. No, I can't. I don't know the assets; I don't know the
17 marketability of those assets; I can't respond."
18 Q. Was that your testimony at your deposition, sir?
19 A. That was, yes.
20 Q. Was that truthful and accurate at the time you gave it?
21 A. Yes.
22 Q. Is it truthful and accurate today?
23 A. Yes.
24 Q. Do you believe today, given everything that you know, that
25 it was a mistake on Lehman's part not to have a true-up clause

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1 of the kind you describe?
2 A. In my opinion, yes.
3 Q. Okay, now, a couple more questions like that. Today, as
4 you sit here now, based on everything you know, is there any
5 Lehman employee who you believed breached their duty of care or
6 loyalty to Lehman during the Barclays sale process?
7 A. No.
8 MR. BOIES: I have no more questions, Your Honor.
9 THE COURT: Is there any redirect?
10 REDIRECT EXAMINATION
11 BY MR. GAFFEY:
12 Q. Mr. Ainslie, at any point during the meeting on the 16th
13 of September, did the chief financial officer, Ian Lowitt, say
14 anything about a discount off of Lehman's books -- off its
15 marks?
16 A. The morning meeting of the 16th, no, not to my
17 recollection.
18 Q. Did anyone else at that meeting who was describing the
19 deal say anything about a discount off of Lehman's marks?
20 A. No, I don't recall it.
21 Q. Mr. Boies, showed you Barclays Exhibit 789. Do you have
22 that in front of you? It should be in the book that Barclays'
23 counsel gave you.
24 A. Which exhibit is that?
25 Q. It's BCI-789. It'll be in the book with a white label on

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1 the front.
2 A. Tab 8.
3 Q. Okay.
4 A. Yes.
5 Q. And for the sake of completeness, sir, I'm going to show
6 you another e-mail in that chain. And I'm putting before you
7 what's been marked as Movant's Exhibit 142.
8 MR. GAFFEY: Your Honor, may I approach? I'm not sure
9 this is in --
10 THE COURT: You can approach this the second time,
11 too. Thank you.
12 Q. Mr. Ainslie, Movant's Exhibit 142 is an e-mail from
13 Michael Lubowitz to Rod Miller. Do you recognize those as
14 lawyers at Weil, Gotshal?
15 A. Yes.
16 Q. And have you seen Mr. Lubowitz's statement, "Here are a
17 few nits. I don't recall the reference to the sixty-four and
18 seventy billion asset -- and seventy billion asset/liability
19 numbers"?
20 A. I see it here. I've not seen this before.
21 MR. BOIES: Your Honor, I'm not objecting to his
22 testimony --
23 THE COURT: Excuse me?
24 MR. BOIES: I said I'm not objecting his testimony
25 because I'm perfectly happy to have them open the door, but

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1 this is a clear waiver of attorney/client privilege, and I just
2 don't want it to be done inadvertently.
3 MR. GAFFEY: Your Honor, we -- as Your Honor knows --
4 once I finish throwing documents around -- as Your Honor
5 Knows, under the letter --
6 THE COURT: It's a dramatic moment.
7 MR. GAFFEY: -- under the letter agreement from
8 discovery, LBHI waived its privilege up to the period September
9 30. And we also produced, during discovery, documents that
10 related to the period of September 30, which is why this
11 document was produced to Barclays during discovery. So there's
12 no additional waiver here; it doesn't go beyond the waiver
13 we've already given.
14 THE COURT: Okay.
15 MR. BOIES: It's an October 29, 2008 document, Your
16 Honor.
17 MR. GAFFEY: That relates to a pre-September 30th
18 event, and that's why we produced it and instructed Weil,
19 Gotshal to produce it, Your Honor.
20 MR. BOIES: I just want to make clear, Your Honor, it
21 is our position, they cannot affirmatively use post-September
22 30 statements without waiving the privilege up to the point of
23 the time of the statement. Now --
24 THE COURT: Well, let's treat this as an unresolved
25 dispute between trial counsel. It may or may not get resolved

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1 during the course of the trial. The question is whether or
2 not, given this articulation of Barclays' position with respect
3 to the document, that you're comfortable using the document in
4 this manner in redirect.
5 MR. GAFFEY: I am, Your Honor.
6 THE COURT: Then we'll see what happens next.
7 BY MR. GAFFEY:
8 Q. And the question, sir, was did you ever have a
9 conversation with Mr. Lubowitz where he told you he did not
10 recall the sixty-four and seventy billion numbers in the draft
11 minutes?
12 A. No, I did not.
13 MR. GAFFEY: I have nothing further, Your Honor.
14 THE COURT: As a result of that question, Mr. Boies,
15 do you have anything more?
16 MR. BOIES: No, Your Honor.
17 THE COURT: Fine. Mr. Ainslie, you're excused. Thank
18 you very much for your time.
19 (Witness excused)
21 MR. GAFFEY: Your Honor, movants would call Bart
22 McDade.
23 THE COURT: Mr. McDade, good afternoon. Please raise
24 your right hand.
25 (Witness duly sworn)

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1 THE COURT: Be seated, please.
2 THE WITNESS: Can I request a bottle of water?
3 THE COURT: Yes, you may request it.
5 THE COURT: Thank you. The witness is looking for a
6 bottle of water before proceeding.
7 DIRECT EXAMINATION
8 BY MR. GAFFEY:
9 Q. Good afternoon, Mr. McDade.
10 A. Good afternoon.
11 Q. Mr. McDade, I'm Robert Gaffey. I'm from Jones Day. We
12 represent the debtor in this matter. Have you and I met
13 before?
14 A. Yes, we have.
15 Q. When did we meet?
16 A. In the deposition in the fall.
17 Q. Have we met any time since then?
18 A. No, we have not.
19 Q. Could you describe for the Court, sir, your current
20 employment?
21 A. My current employment, I am a partner at River Birch
22 Capital, which is a credit-focused investment management firm.
23 Q. And how long have you been a partner at River Birch
24 Capital?
25 A. We started the firm approximately about five months ago.

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1 Q. And prior to your employment at River Birch Capital, what
2 was your employment, sir?
3 A. My last employment was at Barclays after the Lehman
4 bankruptcy for the period after the bankruptcy, approximately
5 the week of September 22nd, through to the end of 2008.
6 Q. Okay, and we'll come to that in a bit more detailed, sir,
7 but what was the -- was there a particular purpose for your
8 going over to Barclays after the transaction?
9 A. My purpose was specifically to help in the transition with
10 the acquisition of the people and the businesses.
11 Q. Did you have any employment contract with Barclays?
13 Q. Did you receive any bonuses from Barclays?
15 Q. What was the nature -- not the number, sir, but the nature
16 of your remuneration during your employment by Barclays.
17 A. It was simply the continuation of my salary that I had had
18 at Lehman Brothers.
19 Q. And why did you leave Barclays' employ?
20 A. I was finished my duties around the transition.
21 Q. Now, sir, at or around the time of the -- could you
22 give -- perhaps, first, you could give the Court a
23 description -- a summary, sir, of your Lehman career. How long
24 were you there, and maybe just the last two or three positions
25 that you held.

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1 A. I'll keep it short. It started summer intern in 1979,
2 full-time employee in 1983, grew up as a corporate bond trader
3 in the fixed income division. Ultimately was privileged to run
4 the fixed income division. Also ran the equities division for
5 three years from 2005 to 2008. And I was the president and
6 chief operating officer from the middle of June 2008 until
7 bankruptcy.
8 Q. And while you were president and chief operating officer,
9 did you have any involvement, sir, in the negotiations of the
10 sale transaction with Barclays that has brought us here today?
11 A. Yes, I did.
12 Q. Okay, and about when did they begin, sir? When did you
13 first become involved in this.
14 A. These -- the week --
15 Q. Well, like --
16 A. We had two trans -- we had two sets of negotiations with
17 Barclays. They really started in earnest sometime Thursday
18 before bankruptcy. This form of the actual negotiation started
19 Monday morning at 7 a.m.
20 Q. Maybe you should briefly first describe that first set of
21 negotiations that began in the few days before the weekend.
22 A. Sure. So Lehman had been approaching a number of suitors
23 toward the end of its operational existence. There were really
24 two. The first was Bank of America. The firm was engaged very
25 specifically, me directly along with a large team in attempting

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1 to sell Lehman pre-bankruptcy to Bank of America. Those
2 negotiations started to wind down in a negative sense in terms
3 of the likelihood of an outcome, and Barclays entered a series
4 of specific negotiations sometime late Thursday and Friday and
5 up through the weekend, including up through Sunday.
6 Q. And do you have a guess, sir, as to why that set of
7 negotiations did not come to fruition with an agreement?
8 A. Those transactions required a number of specific changes
9 to what they would be buying. They contemplated buying Global
10 Lehman as a set of businesses. They did not want to or could
11 contemplate certain illiquid asset classes, so it required a
12 credit facility from the marketplace and it certainly required
13 an enormous amount of regulatory cooperation, not only in the
14 US, but obviously, Barclays' a big UK institution. So global
15 regulatory cooperation.
16 Q. And what was the nature, if any, of your personal
17 involvement in that first phase of negotiations with Barclays?
18 A. I was very involved with those negotiations, as well.
19 Q. Now, did there come a time when negotiations with Barclays
20 resumed after that first deal died?
21 A. We were informed of the inability to consummate that
22 overall transaction Sunday afternoon. We pushed for resuming,
23 once we understood that LBHI would be in bankruptcy, resuming
24 conversations with Barclays Sunday evening. I reached out and
25 made a call to Bob Diamond, and we resumed Monday morning with

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1 a team of his and my senior partners.
2 Q. Okay, now, from the time that you first reached out to Mr.
3 Diamond through the conclusion of the deal, did you have some
4 level of involvement in the negotiations and the consummation
5 of the transaction?
6 A. Yes, I did.
7 Q. All right, and at the outset of those activities, of those
8 negotiations, did there come a time when Barclays offered you
9 employment?
10 A. Barclays -- the evening of Monday -- whatever the Monday
11 is; I apologize, I forget the exact date.
12 Q. Everybody at this side of the table knows it was the 15th,
13 sir.
14 A. Monday the 15th, late in the evening, I was sitting in my
15 office on the thirty-first floor with Bob Diamond, and he
16 attempted to start a conversation with me with respect to
17 employment. I stopped that conversation and immediately
18 reached out to lawyers -- Tom Roberts -- lawyers from Lehman
19 and made sure that Bob and his counsel knew that I was to be
20 independent of any of that process.
21 Q. Why did you do that?
22 A. I knew it was the right thing to do in terms of making
23 sure that Lehman had independence in the process.
24 Q. Now, after your initial call with Mr. Diamond on the
25 evening of the 14th, just for a timeline over the next couple

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1 of days, could you describe what the nature of the transactions
2 were through, say, Tuesday morning the 16th and what your
3 involvement was in them?
4 A. Sure. We had the organizational meeting, as I described,
5 7 a.m., which was a telephonic meeting. From that, we
6 assembled, using the thirty-second floor of Lehman Brothers'
7 old headquarters. Large groups of constituent parts of the
8 Lehman organization and the Barclays organization. That setup
9 of the thirty-second floor was very conducive to lots of
10 different meetings that needed to go on at that point in time
11 because it was our old dining room facility. So there were, in
12 effect, conference-room-like facilities in place. I would
13 describe the course of the meeting as roughly starting around
14 noon on that Monday with an organizational meeting with
15 advisors, lawyers, and the senior principals involved in the
16 discussions from both sides.
17 Q. Who were the senior principals involved in the discussions
18 on both sides?
19 A. The senior principals involved on the Lehman Brothers side
20 would have been Mark Schaffer, Skip McGee, myself. The senior
21 principals on the Barclays side would have been Archibald Cox,
22 would have been Rich Ricci, and would've been Michael Klein.
23 Q. Apart from yourself, Mr. McGee, and Mr. Schaffer, were
24 other Lehman executives involved around the transactions,
25 involved in activities related to the transactions?

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1 A. Absolutely.
2 Q. Could you give us a roster of who that was? You don't
3 have to go all the way down through everybody with a sharp
4 pencil, but who were the senior executives involved?
5 A. There was -- well, it's a very long list. There were at
6 least fifty or sixty folks involved in a senior way, so the
7 head of HR, Tracy Binkley, as an example. Do you want me to --
8 Q. No, I don't.
9 A. Okay.
10 Q. I don't want all fifty names. Was Mr. Lowitt involved?
11 A. Mr. Lowitt was not involved in the early discussions, no.
12 Q. Did there come a point when he became involved?
13 A. Later in the week as we needed to finalize specific issues
14 around the transactions, yes.
15 Q. And Martin Kelly. Was Martin Kelly involved?
16 A. Martin Kelly was involved in terms of making sure --
17 through the course of the week, in making sure information was
18 provided for the participants, yes.
19 Q. Any particular type of information was being provided to
20 the participants?
21 A. He was the -- I'm sorry -- he was the controller of the
22 firm, and so data with respect to the balance sheet, data with
23 respect to certain obligations that Barclays would be assuming,
24 things like that.
25 Q. When you refer to the obligations that Barclays' going to

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1 be assuming, what do you mean?
2 A. Cure payments, as an example.
3 Q. Were there others, apart from cure payments?
4 A. He would have been responsible for all of the information
5 used. So information at a high level, because he wouldn't have
6 seen specific compensation data, but a high level, as another
7 example, would be compensation.
8 Q. Okay, now let's go back to the initial call with Mr.
9 Diamond. And in that first call with mar. Diamond, was any
10 particular deal structure discussed?
11 A. Not at all.
12 Q. Where's the point where a deal -- well, describe -- when
13 did you come to a deal structure in the negotiations?
14 A. Sometimes between the afternoon on that Monday and dawn
15 the next morning.
16 Q. And so that would take you overnight from the 15th to
17 early morning on the 16th, correct, sir?
19 Q. And when -- so do I understand you correctly that a
20 structure was reached around dawn on the 16th?
21 A. A -- a structure, in terms of a guidance document, yes,
22 that actually started to be formed.
23 Q. Okay, now, what's going on on the thirty-second floor in
24 that overnight session that leads to a structure on the --
25 around down on the 16th. How many people are there, how many

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1 rooms are being used? Could you give us a sense of that?
2 A. All the rooms are being used. There's well over a hundred
3 individuals, all the advisor teams, all the lawyer teams, very
4 open, active, dynamic process broken out by individual work
5 streams.
6 Q. Okay, and give us an example of the work streams.
7 A. A work stream, using Tracy Binkley, used to work HR at
8 Lehman, working with her counterparts at Barclays, trying to
9 help create a sense of the necessary data and process around
10 compensation.
11 Q. Okay, were there work streams in connection with valuing
12 assets?
13 A. There were work streams, yes, in valuing assets, right
14 from the beginning. So all of the heads of the capital markets
15 and the individuals who were responsible for risk managing head
16 trader's business heads of the assets that were to be purchased
17 as part of the transaction. They were in a room with their
18 counterparts, or at least in some cases, telephonically in a
19 room with their counterparts from Barclays.
20 Q. And what was your understanding of what was going on in
21 the meetings between the traders?
22 A. In the meetings between the traders?
23 Q. Yeah.
24 A. There was a process to attempt to find value for those
25 assets given that this was September 15th and 16th, and the

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1 markets have changed dramatically.
2 Q. And what was the result of that process, of the traders
3 talking about valuation?
4 A. The result of that process was an agreement at that point
5 in time, knowing that there was a long week, in terms of
6 ultimate sale process approval that valuations could change and
7 likely would change, given what was happening in the market.
8 But an agreement in principle around valuing in terms of the
9 actual transaction, valuing the assets.
10 Q. And what was the role, if any, of that agreement regarding
11 valuing the assets to the deal structure that was achieved by
12 dawn on the morning of the 16th?
13 A. It was an important role.
14 Q. Now, did the valuation that was achieved with regard to
15 the assets contain any delta between the book value at which
16 Lehman carried those assets and the price that Barclays would
17 pay?
18 A. To the best of my understanding, we had not marked the
19 books since Friday evening close because we had so many
20 operational challenges, given the bankruptcy announcement on
21 Sunday with just employees, loss of employees. So yes, my
22 understanding is that marking process, that valuing process,
23 that dialogue amongst the different risk groups would have
24 delivered a different outcome than the marks on Friday given
25 everything that happened to Lehman and in the marketplace.

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1 Q. And by different outcome, are we on the same page when I
2 say delta and you say different outcome?
3 A. Yes, I'm sorry.
4 Q. And what was the dollar value of that delta?
5 MR. BOIES: Objection, Your Honor.
6 THE COURT: Objection as to the dollar value of that
7 delta?
8 MR. BOIES: Yes, foundation. Witness's testimony.
9 THE COURT: All right, maybe you can ask a few more
10 questions before getting into the dollar value of the delta.
11 Q. Did there come a point, sir, where you learned the
12 difference between the dollar value that had been agreed and
13 Lehman's marks?
14 A. I received an e-mail from Martin Kelly early in the
15 morning of the 16th which indicated approximately that figure,
16 the five billion.
17 Q. Mr. McDade, in the book before you is a copy of Movant's
18 Exhibit 7. Would you take a look at that, please?
19 A. Yes.
20 Q. And you see that that's an e-mail from Martin Kelly. Did
21 you see this e-mail at or around it's dated, that is, the 16th
22 of September?
23 A. The actual e-mail?
24 Q. Yeah.
25 A. No, I saw -- I've seen this in reviewing for the

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1 deposition.
2 Q. You referred to getting an e-mail from Mr. Kelly
3 describing the delta we were talking about.
4 A. Right.
5 Q. Do you recall what that e-mail said?
6 A. No, I misspoke. I referred to the conversation --
7 Q. Okay.
8 A. -- that Martin and I had with respect to this e-mail.
9 Q. Okay, tell us about the conversation that Martin and you
10 had where you learned the delta between what Lehman's book
11 showed and the agreed price.
12 A. It -- it was simply -- it was a very short conversation.
13 It was --
14 MR. BOIES: Your Honor, I'm going to object on hearsay
15 grounds.
16 THE COURT: Well, all he's said so far is it was a
17 very short conversation.
18 MR. BOIES: I know, but I was afraid he was going to
19 get to the substance.
20 THE COURT: Okay, well, we have an anticipatory
21 hearsay objection.
22 MR. GAFFEY: Your Honor, I don't think what Mr. Kelly
23 says comes in for the truth of the matter asserted. It comes
24 in for the state of mind of one of the negotiators, Mr. McDade.
25 THE COURT: I think we can let it in on that basis.

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1 Objection's overruled with the understanding that to the extent
2 he talks about what he was told, it doesn't indicate that what
3 he was told was truthful.
4 Q. What did Mr. Kelly tell you?
5 A. Mr. Kelly simply told me that he reviewed the work that
6 had been done by the work streams and created a summary of that
7 work.
8 Q. And did -- in your conversation with Mr. Kelly, did you
9 come to an understanding of the amount of the difference
10 between what was shown on Lehman's books and the price that had
11 been agreed?
12 A. I wouldn't describe it as we came to an understanding. He
13 was simply reporting he had heard in terms of the process.
14 Q. What did he tell you?
15 A. Exactly what I just -- what I just said to you.
16 Q. What number did he give you, Mr. McDade?
17 A. What number?
18 Q. What was the number that he put on the difference between
19 the books and the agreed price?
20 A. The five billion.
21 Q. And did Mr. Kelly tell you anything else about the
22 economics of the transaction, apart from the difference between
23 the book value and the agreed price? Did he talk to you about
24 accruals?
25 A. We didn't talk about accruals in that conversation.

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1 Q. Okay, in the course of your work that followed in
2 connec -- I take it you stayed involved in the transaction
3 after this agreement was reached at around dawn on the 16th of
4 September, right?
5 A. Yes, I did.
6 Q. Okay, and in the course of your work on the transaction,
7 did you work on the knowledge that Mr. Kelly had given you --
8 on the basis of the knowledge Mr. Kelly had given you
9 concerning the difference between the books and the agreed
10 price?
11 A. I worked on the knowledge of the process that we started
12 from the beginning, which is continuing to value the assets
13 over the course of the week if you're speaking specifically to
14 the balance sheets and the five billion figure. So I -- it was
15 very clear, given the markets, given the dynamic nature of the
16 process, the time for approval in terms of the debt, we would
17 continue on in a process and that this was simply marking a
18 moment in that process.
19 Q. And in the moment in that process, I'd like you to focus
20 on the 16th of September, was the agreed price with regard to
21 the assets equal to the book value for those assets as of
22 September 16th?
23 A. I've described the book value as if that is the definition
24 used for the process that we went through Monday, Tuesday, in
25 terms of the valuing.

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1 Q. If you understand book value to be the price that the
2 triggers came up with, then it would be accurate in your view?
3 A. Right.
4 Q. If it was in relation to the stated book value, that which
5 was shown on Lehman's books as of the 16th?
6 A. I don't have specific knowledge of the stated book value
7 on the 16th.
8 Q. And if you wanted specific knowledge of the state of
9 Lehman's book value on the 16th, who would you ask?
10 A. I would have asked Ian Lowitt or I would have asked Martin
11 Kelly.
12 Q. And why would you have asked Ian Lowitt?
13 A. He was the CFO of the firm.
14 Q. And why would you have asked Martin Kelly?
15 A. Controller of the firm.
16 Q. Okay, and as between yourself and Mr. Lowitt and Mr.
17 Kelly, who's got greater knowledge of what was reflected on
18 Lehman's books as of the 16th of September, 2008?
19 A. Mr. Kelly.
20 Q. Now, you have some familiarity with mark-to-market
21 accounting, is that right, sir?
22 A. Yes, I do.
23 Q. And do you know if -- and Lehman kept its books on a mark-
24 to-market basis, is that right?
25 A. Yes, they did.

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1 Q. And does the book value of securities on a mark-to-market
2 basis contemplate the sale of securities in bulk to your
3 understanding?
4 A. Not in distress.
5 Q. And would book value of a financial institution reflect
6 moving the entire book the next morning?
7 A. No, it would not.
8 Q. And in the course of your discussions with Barclays, was
9 there any suggestion that it was their intention to move the
10 purchased assets the next day in bulk?
11 A. Could you repeat that question? I'm sorry.
12 Q. Let me shoot it and try something simpler. Did Barclays
13 say anything along the lines of they were going to resell the
14 assets in bulk the day after they purchased them?
15 A. No.
16 Q. Had you, on the 16th, spoken to anyone who had told you
17 that Lehman had been unable to mark its books on the 16th?
18 A. No, I had not spoken to anyone.
19 Q. Had you at the time?
20 A. At the time, I had not spoken to anyone.
21 Q. And at the time, had you spoken to anyone who told you
22 Lehman was unable to mark its books as of the 15th of
23 September?
24 A. No, I don't have that recollection.
25 Q. So as you sit here today, sir, do you know if Lehman's

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1 books had been marked as of the 15th and 16th of September, do
2 you have any knowledge of that?
3 A. As I sit here today, I don't have knowledge.
4 Q. Was Paolo Tonucci involved in the negotiations, sir?
5 A. Paolo Tonucci was the treasurer of Lehman. He was
6 involved as the week went on, not early on in the negotiations,
7 to the best of my knowledge.
8 Q. Now, I don't want to miss each other, here. With regard
9 to the negotiations, I take it there's ac -- let's be clear on
10 what terms we're using, okay? With regard to the negotiations,
11 I'm not asking if they were involved in the haggling, in the
12 horse-trading at the table. Do you know if Mr. Tonucci had a
13 role early in the week around those negotiations, you know, in
14 any other role?
15 A. I would have thought he would, yes.
16 Q. Why would you think that?
17 A. Given his role as a treasurer.
18 Q. Okay, and let me ask you the same question with respect to
19 Mr. Kelly Would he have had involvement around the
20 negotiations?
21 A. Yes, he would have.
22 Q. And with respect to Mr. Lowitt in that early part of the
23 week, would he have had involvement around the negotiations?
24 A. Yes, he would.
25 Q. When you learned the terms of the transaction, sir -- when

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1 the terms of the transaction were reached in the early morning
2 of the 16th, what, if any, provisions in the structured
3 agreement --
4 MR. GAFFEY: Withdrawn.
5 Q. When an agreement was reach early on the morning of the
6 16th, sir, were there any agreements with respect to Barclays'
7 assuming liabilities for compensation or for trade payable
8 cure?
9 A. Yes, there were.
10 Q. Could you describe them to the Court, please?
11 A. Barclays would need to -- well, start with the cure.
12 Barclays would need to get a list of the contracts that
13 heretofore Lehman had had responsibility for in terms of those
14 that affected the running of the businesses that they were
15 purchasing. And they agreed, in principle, to honor those --
16 those contracts after the process of being able -- given we
17 were unable during the course of that week -- to actually start
18 any integration process of any consequence. After they were
19 given the information, they were given a period of time, I
20 believe sixty days, to be able to go through the process and
21 understand those contracts and make the determination at that
22 point in time whether or not those were necessary for running
23 the business and franchise going forward.
24 Q. The other part of that question had to do with
25 compensation, sir.

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1 A. Right. Barclays also assumed a two billion compensation
2 liability with respect to the combination of the employees'
3 bonus process and the severance process with respect to -- they
4 agreed to hire all of the Lehman North American employees, and
5 then there was a period of time, I believe ninety days, that
6 they had to make ultimate determination, in terms of whether or
7 not those would become permanent employees of the -- of the bar
8 cap going forward.
9 Q. And at the time, around the 15th or the 16th -- I'm still
10 in that early part of the week -- was any number put up as an
11 estimate of the amount Barclays would pay in trade payables?
12 A. Trade payables, I believe the number at that point in time
13 was 2.25 billion.
14 Q. And who calculated that number?
15 A. They're not calculations. They're an attempt to extract
16 from the Lehman systems the list of those contracts and
17 obligations. That would have been Martin Kelly.
18 Q. And did there come a time during the course of the week
19 where that number changed from 2.25?
20 A. As information became clearer, that number changed from
21 2.25; I believe by Friday, it was 1.5 billion.
22 Q. And in your understanding at the time, sir, was that an
23 estimate of an amount that Barclays actually would pay
24 A. That was an estimate of an amount that Barclays had the
25 potential to pay.

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1 Q. And was any estimate done -- did you have any discussions
2 with Barclays -- you or anyone on the negotiating team have
3 discussions with Barclays about whether Barclays intended to
4 pay amount in that range?
5 A. No, I did not.
6 Q. Was it an issue that came up in the negotiations between
7 the Lehmanites and the Barclays side of the table at all, as
8 far as you know?
9 A. Not that I was involved in.
10 Q. And who calculated the two billion dollar numbers -- the
11 two billion dollar figure for compensation?
12 A. The compensation process, was a process that I would
13 describe where Lehman provided Barclays -- Lehman -- I believe
14 it started in the work stream with the HR professionals.
15 Lehman provided the data that existed on the Lehman accrual at
16 that point in time, and then provided that data to -- an
17 historical pay data -- historical pay data, as well, to
18 Barclays and obviously cooperated in terms of all the flow of
19 information that Barclays needed. It's certainly my
20 understanding that Barclays would have been the ultimate
21 determiner given that it was such an important part of what
22 they were buying, which is the services of the good employees
23 of Lehman, that they would have reflected on that compensation
24 process. So they would have been the ultimate determiners, in
25 my opinion, of the compensation figure. But given a lot of

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1 cooperation and a lot of information from Lehman.
2 Q. And when you say ultimate determiner of the compensation
3 figure, are you referring to what compensation figure would be
4 used in connection with making the agreement?
5 A. Correct.
6 Q. To your knowledge, did Mr. Kelly participate in the
7 estimation of -- did Mr. Kelly review Lehman's accruals for
8 trade payables as part of the process of estimating the cure
9 liability?
10 A. Yes.
11 Q. At the time, sir, did you have any knowledge whether or
12 not Mr. Kelly made transaction adjustments that wrote those
13 numbers up?
14 A. No, I had no knowledge of that.
15 Q. Did you ever have a discussion with him along those lines?
16 A. Around writing up the -- no, I have not -- did not have a
17 conversation with him.
18 Q. Would it have surprised you if he had?
19 A. Absolutely.
20 Q. Why would it have surprised you?
21 A. Because he's someone I worked with for many years and a
22 man of great integrity.
23 Q. Was the process of attempting to estimate trade
24 liabilities meant to be a process to determine what Barclays
25 was likely to pay once it bought the business?

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1 A. The process was to collect the data and make sure we
2 understood the actual obligations needed to pay. There was no
3 process around the likely outcome of that figure.
4 Q. And with respect to the compensation number, was that an
5 agreed number, two billion dollars?
6 A. That was a number that was ultimately agreed, yes.
7 Q. Okay, if you would turn, sir, in your book to tab M2, or
8 2, Movant's Exhibit 2? Are you with me on the document, sir,
9 Movant's Exhibit 2?
10 A. Yes, I am.
11 Q. Have you seen the document before?
12 A. Yes, I have.
13 Q. What were the circumstances under which you first saw the
14 document?
15 A. This was a document that I described a little earlier that
16 became a guidance document for all the participants including
17 advisors with respect to the deal and its structuring and
18 coming together.
19 Q. And when you first saw the document, were you with other
20 people?
21 A. I don't have a specific recollection of that.
22 Q. You see that the document's initialed in the upper right-
23 hand corner?
24 A. Yes, I do.
25 Q. Do you recognize the initials?

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1 A. Steve Birkenfeld.
2 Q. Okay, and above that is the date, September 16th, '08 and
3 the word "final". Were you there when Mr. Birkenfeld put his
4 initials on the document?
5 A. I don't recall -- no, I don't think so.
6 Q. Okay, does this document bear any relation to the sale
7 transaction as you understand it, sir?
8 A. It has a strong resemblance, yes.
9 Q. Could you describe what you mean by that?
10 A. This was, again, the guidance document used for the first
11 hearing in this courtroom.
12 Q. And when you say the guidance document used for the first
13 hearing in the courtroom, is it fair to say these are the
14 numbers upon which the deal was based on the 16th?
15 A. Yes.
16 Q. And on the asset side of this financial schedule, sir, who
17 generated those -- who or what process generated those numbers?
18 A. That process that I described before of the different risk
19 partners from both organizations.
20 Q. Okay, and the asset side numbers that total -- well, the
21 asset side numbers, are they the agreed numbers or are they
22 numbers that are taken directly from Lehman's books?
23 A. They are the agreed numbers.
24 Q. And the asset side numbers on this schedule, sir, did they
25 have that same delta between the agreed number and the Lehman

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1 books that we talked about before?
2 A. That's what I would understand.
3 Q. And would that be about that five billion dollar element
4 we talked about?
5 A. I don't have specific knowledge of the exact number, but
6 yes.
7 Q. It would be in the range of five billion?
8 A. Right.
9 Q. Now, do you know, sir, if Lehman's books were ever marked
10 to reflect the agreed valuation by the usual mark-to-market
11 methods?
12 A. I don't know that.
13 Q. And who would you ask if you wanted to know the answer to
14 that?
15 A. Martin Kelly.
16 Q. Would you ask Mr. Lowitt, as well?
17 A. Yes, he should've known.
18 Q. Did the agreed valuation that's reflected in Exhibit 4
19 include any kind of haircut to reflect market volatility?
20 A. I'm sorry, is this Exhibit 4?
21 Q. Yes.
22 A. Okay.
23 UNIDENTIFIED SPEAKER: 2.
24 Q. I beg your pardon, 2.
25 A. Could you repeat the question? I apologize.

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1 Q. Does the --
2 A. Yes.
3 Q. -- calculation asset side here reflect any haircut to
4 reflect market volatility?
5 A. It was the most unusual week in my twenty-five years of
6 market experience, so clearly they had to reflect -- the
7 valuation in that process had to reflect that uncertainty of
8 times.
9 Q. Well, when -- would that have been consistent with your
10 understanding of the transaction, if the valuation that was
11 agreed included a haircut to reflect market volatility?
12 A. The transaction was an agreement for Barclays to purchase
13 the assets. That negotiation would have included in a time and
14 place where literally five million dollar trades in fixed
15 income were unusual would have included all sorts of different
16 assumptions in terms of the process.
17 Q. Well, if there had been negotiations of a haircut, an
18 agreement to apply a haircut to reflect future market
19 volatility, would that have been consistent with your
20 understanding of the transaction?
21 A. No, there weren't negotiations to agree to a haircut.
22 There were negotiations in the best sense that were possible in
23 a forty-eight hour period, roughly speaking, at that moment
24 when this -- or less -- when that moment was this -- this
25 document was created. That reflected the ability to find a

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1 price to transact.
2 Q. And the price to transact was not Lehman's book value as
3 of the 16th of September. Is that right?
4 A. To the best of my understanding, yes.
5 Q. Now, when Lehman did make mark to mark judgments on its
6 books, did it take illiquidity into account?
7 MR. GAFFEY: Let me withdraw that.
8 Q. When Lehman recorded marks on its books, was illiquidity
9 taken into account?
10 A. Yes, it was.
11 Q. Now, on the liability side of this schedule, sir, you'll
12 see at the lower right-hand corner, items for cure, payment and
13 comp. Do you see that?
14 A. Yes, I do.
15 Q. And the comp number is put at 2.25. We understand this
16 number to be billions, right, sir? These are billions. You
17 said comp?
18 A. For cure.
19 Q. The cure payment is put at 2.25 billion?
20 A. Yes, it is.
21 Q. And comp is put at 2.0 billion. Is that right?
22 A. Yes. Yes, I see that.
23 Q. And is the 2.25 shown on that schedule the same 2.25 you
24 referred to a few moments ago?
25 A. Yes, it is.

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1 Q. And the two billion for comp is the same two billion you
2 testified about a few moments ago, correct?
3 A. Yes. Yes, it is.
4 Q. Now, does this schedule reflect that those two components
5 were part of the price in the asset purchase agreement?
6 MR. GAFFEY: Withdrawn.
7 Q. Does this schedule reflect that those two components were
8 part of the price in the transaction that was agreed?
9 A. The price in the transaction, yes.
10 Q. Now, if the compensation accrual on that schedule, sir, of
11 two billion dollars was not a good-faith estimate of what
12 Barclays would actually pay, would that be consistent with the
13 deal that you made?
14 A. If it was not a good-faith estimate?
15 Q. Yes. If it was not a good-faith estimate of what Barclays
16 would actually wind up paying, would that be consistent with
17 the deal that you made?
18 A. No.
19 Q. And were you taking any steps during the week, sir, to
20 ensure the accuracy of the estimates regarding cure payments?
21 A. Yes, I was.
22 Q. What were you doing in that regard?
23 A. I actually recall having a meeting with Martin and Ian to
24 make sure that we had accurate information to deliver to
25 Barclays.

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1 Q. And was one of the reasons that you wanted accurate
2 information, is that it related to the amount of value that
3 Lehman had to give to Barclays in the transaction?
4 A. It was just a core part of the actual -- one of the deal
5 imperatives, so we needed the accurate information with respect
6 to what that number would be.
7 Q. Well, apart from its accuracy, sir, my question is a
8 little different. And it is whether it was important that it
9 be accurate, because it related to the amount of value that
10 Lehman was going to get from Barclays?
11 A. Yes.
12 Q. So in your mind, negotiating the transaction, coming up
13 with an accurate estimate of the cure payments that Barclays
14 would assume, was an important component of the deal. Is that
15 right?
16 A. An accurate estimate of the potential cure payments they
17 would assume? Yes.
18 Q. And an accurate estimate of the comp that they were going
19 to pay?
20 A. Yes.
21 Q. Now, you mentioned before that the cure number dropped
22 from 2.25 down to 1.5, and you thought that was the number at
23 the end of the week. Do you recall that?
24 A. Yes, I do.
25 Q. And do you know why the number dropped from 2.25 to 1.5?

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1 A. It -- I don't know the specifics. I can only guess that
2 given all of the challenges that we were having operationally,
3 that would be one of the reasons. But no, I don't have the
4 specifics.
5 Q. Did there come a point during the week when Martin Kelly
6 told you that the trade payables were moving from a higher to a
7 lower number?
8 A. Yes.
9 Q. Do you recall that?
10 A. Yes.
11 Q. Was that after -- do you recall at what point in the week
12 that happened?
13 A. If I recall, it was later in the week, as more information
14 was available to him from his teams.
15 Q. I know it was a pretty tumultuous week, sir, but was it
16 closer to Thursday or Friday, or closer to Monday or Tuesday?
17 Do you have -- what's your best recollection of when during the
18 week that happened?
19 A. It was closer to Thursday-Friday.
20 Q. And was it dropping below the 1.5?
21 A. The figure was never an accurate number over the course of
22 the week. I don't have specific recollections in terms of what
23 each individual number, nor was I part of the process of
24 collecting that from Martin. I knew we were having generally,
25 just a tough problem getting the actual ascertained data.

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1 Q. Now, do you agree, sir, that with regard to the
2 transaction you negotiated, that a drop in the cure number
3 would mean the consideration Barclays was giving would go down?
4 A. Yes.
5 Q. Is there any reason you could think of, sir, that would
6 justify increasing the amount of the estimate for cure over the
7 amount shown on Lehman's books?
8 A. There's no reason why.
9 Q. Now, with reference to the process you described before,
10 of looking at open trade payable contracts, trying to figure
11 how many there were out there and coming up with a number, is
12 it correct that -- at least as far as you understand, the
13 amount that would have been accrued on Lehman's books would
14 have reflected what it thought would be its trade payables,
15 correct?
16 A. Yes. Yes.
17 Q. So would there be any good reason you can think why, to
18 adjust with regard to this transaction, the accruals on
19 Lehman's books for trade payables, would have to be increased
20 to fit onto that schedule?
21 A. I'm not sure I understand your question.
22 Q. Well, the amount accrued on Lehman's books would show a
23 cap, would show a ceiling of what Lehman thought it would have
24 to pay in trade payables, yes?
25 A. Yes.

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1 Q. And if the amount ultimately agreed upon in this transa --
2 ultimately shown in this transaction exceeded that, can you
3 think of any rational reason to go over that amount accrued on
4 Lehman's books?
5 A. No, I cannot.
6 Q. Because there aren't going to be any more trade payable
7 contracts than Lehman's already got, right?
9 Q. Did you ever, in the course of that week, see any of Mr.
10 Kelly's work product in connection with estimating the cure
11 number?
13 Q. Did you ever see any calculations or work product
14 generated by anyone who worked for Mr. Kelly, with regard t
15 that cure number?
17 Q. Did Mr. Kelly ever talk to you about the process by which
18 he was estimating that cure number?
19 A. No, he did not.
20 Q. Now, you mentioned before, sir, that Exhibit M-2, this
21 financial schedule, bore a significant resemblance to the deal?
22 A. Yes.
23 Q. Do you mean a significant relation -- you don't mean it
24 looked like the deal, do you? I mean, I just want to clear up
25 your phraseology here. Was this part of the deal?

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1 A. No, it was not part of the deal.
2 Q. Okay. And it informed the numbers that were brought to
3 the Court the next day? Is that your --
4 A. Yes.
5 Q. And how is it you know it informed the numbers that were
6 brought to the Court the next day?
7 A. This was the guiding document that all of the
8 participants, including advisors and lawyers, were using.
9 Q. Did the lawyers involved -- when you talk about the
10 lawyers, I take it you're talking about Weil Gotshal, among
11 other lawyers?
12 A. Yes.
13 Q. And Simpson Thacher?
14 A. Yes.
15 Q. And in-house lawyers?
16 A. Yes.
17 Q. Would the in-house lawyers include Mr. Birkenfeld?
18 A. Yes.
19 Q. To your knowledge, sir, did Mr. Birkenfeld or Weil Gotshal
20 or Simpson Thacher play any role in the values that wound up in
21 that schedule?
22 A. On the values? No.
23 Q. Well, did they play any role in calculating the assets or
24 liabilities that are shown on that schedule?
25 A. No.

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1 Q. Did you ever have any discussions with anyone from Weil
2 Gotshal or Simpson Thacher or in-house counsel about the basis
3 for the numbers shown on that schedule?
4 A. Could you elaborate on "the basis"?
5 Q. Why the number is 2.25 as opposed to something else? Who
6 calculated it? What was the process?
7 A. Oh, with respect to cure?
8 Q. Yeah.
9 A. No.
10 Q. What about with respect to comp? Did you have any
11 discussions with the lawyers about the comp numbers along those
12 lines?
13 A. They were -- it was an open set of dialogue. So they -- I
14 specifically did not, but they would have been part of lots of
15 those processes, would be my understanding.
16 Q. Do you have any knowledge of who, if anyone, told them
17 what the basis of those numbers was?
18 A. No.
19 Q. If you would turn, Mr. McDade, to tab 1 in your book.
20 It's Exhibit M-1, which is also Exhibit BCI-1. And for good
21 reasons, it's the asset purchase agreement.
22 Now, did you see -- the asset purchase agreement, Exhibit
23 1 in evidence, sir, did you see it at or around the time it was
24 completed?
25 A. Yes.

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1 Q. And take a look at the last page, sir, and you'll see that
2 it's signed for Lehman Brothers Holdings Inc..
3 A. Yes.
4 Q. Do you see that? Do you recognize the signature?
5 A. Steve Birkenfeld.
6 Q. Did you review it before Mr. Birkenfeld signed it?
7 A. Mr. Birkenfeld and I had a conversation with respect to
8 this document, yes.
9 Q. My question, sir, was did you review the document before
10 Mr. Birkenfeld signed it?
11 A. Yes.
12 Q. Okay. And when you reviewed the document before Mr.
13 Birkenfeld signed it, in your view, did it accurately reflect
14 the terms that had been agreed between Lehman and Barclays?
15 A. Yes.
16 Q. Did you review it with that purpose in mind?
17 A. I reviewed it with the purpose to make sure that the
18 concepts of what we had been negotiating were framed in the
19 document.
20 Q. Let me ask you first, sir, to turn to page -- well, to put
21 us in context, turn to page 34, which is Article IX of the
22 asset purchase agreement entitled "Employees and employee
23 benefits." Do you see that, sir?
24 A. Yes, I do.
25 Q. And if I could direct your attention over leaf onto page

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1 35, which is section 9.1(c).
2 A. Right.
3 Q. And take a minute to familiarize yourself with it, sir.
4 But my question will go to the schedule that's referred to in
5 this section. Let me know when you've had a chance to have a
6 look at the language there.
7 (Pause)
8 A. Okay.
9 Q. And you see, Mr. McDade, that there's a reference to --
10 this section covers bonuses, correct?
11 A. (c)? Yes, bonuses.
12 Q. And severance is covered -- I see you turning back to page
13 34 -- severance is covered in 9.1(b), the prior section,
14 correct?
15 A. Yes.
16 Q. And in the section on bonuses, 9.1(c), there's a reference
17 to a "financial schedule delivered to purchaser on September
18 16, 2008, and initialed by an officer of each of Holdings and
19 Purchaser." Do you see that?
20 A. Yes, I do.
21 Q. And to your understanding, sir, is the document we marked
22 as Exhibit M-2, the schedule we were just talking about, the
23 same one that's referred to in 9.1(c)?
24 A. No, it became a reference document, but it was not
25 actually the specific financial schedule delivered.

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1 Q. Would you take a look at your deposition, which is --
2 A. Do I have that?
3 Q. Yes, it's in the book, sir.
4 A. Yes.
5 Q. And turn to page 71. I think you've got the full text
6 there, right, full-size pages?
7 A. Yes.
8 Q. And directing your attention to page 71 line 14. Do you
9 recall that I asked you this question and you gave this answer,
10 sir?
11 A. I do.
12 Q. Well, let me read it into the record, so it's clear.
13 "Q. Within 9.1(c), you'll see -- let me read you the section
14 I'm thinking about here. 'On or after,' reading along with me
15 in section 9.1(c), 'On or after the closing, purchaser shall or
16 shall cause its subsidiaries to pay each transferred employee
17 an annual bonus in respect to the 2008 fiscal year, that in the
18 aggregate, are equal in amount to a hundred percent of the
19 bonus pool amounts accrued in respect of the amounts payable
20 for incentive compensation, but not base salary, and reflected
21 on the financial schedule delivered to purchaser on September
22 16, 2008.'?
23 "A. Right."
24 Q. Do you recall that question and answer?
25 A. Yes, I do.

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1 Q. So you were focused on the same section, 9.1(c) that I
2 just asked you about?
3 A. Yes.
4 Q. And then I asked this question at page 72, line 7 through
5 line 10:
6 "Q. Is that schedule that's referred to in 9.1(c) the schedule
7 that's marked as Deposition Exhibit 19?
8 "A. Yes, it is."
9 Do you see that?
10 A. Yes, I do.
11 Q. So the question I asked you --
12 MR. BOIES: Your Honor, for context, could we have the
13 next --
14 THE COURT: How much more do you want read?
15 MR. BOIES: From -- going through line 5 on page 73.
16 MR. GAFFEY: Sure, Your Honor.
17 THE COURT: Okay. Let's do that.
18 MR. GAFFEY: Is it line 5 on 73, David?
19 MR. BOIES: Yes.
20 MR. GAFFEY: Line 5 on 73 is an answer.
21 MR. BOIES: Yes, going through there.
22 MR. GAFFEY: Oh, I beg your pardon.
23 "Q. So it's your understanding that the amount to be paid in
24 bonuses pursuant to 9.1(c) was equal to the amount shown as the
25 compensation accrual on Deposition Exhibit 19?"

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1 MR. GAFFEY: Mr. Hume objects. I say you can ignore
2 him. And ask and answer the question. Answer at 19:
3 "A. The accrual was based on a Barclays model which I don't
4 know how to contemplate and answer the question relative to
5 their ultimate intent.
6 "Q. Let me ask it this way, is the two billion number -- do
7 you know one way or the other whether the two billion number in
8 the liability side of Exhibit 19 comes from the Barclays model?
9 "A. Comes from all the data given to Lehman."
10 MR. GAFFEY: That was what you wanted read in?
11 MR. BOIES: Yes.
12 BY MR. GAFFEY:
13 Q. Sir, the question is, is the schedule marked as Exhibit 2
14 the schedule referred to in 9.1(c) of the agreement?
15 A. It's a reference that was referred to, yes.
16 Q. It's the sa --
17 A. It's a reference document.
18 Q. -- we're talking about the same document, yes?
19 A. Yes.
20 Q. The one that I had on the screen before as Exhibit 2 is
21 the same document, in your mind, that's referred to in 9.1(c)?
22 A. It's the same document, yes.
23 THE COURT: Mr. Gaffey, I'm wondering whether or not
24 this would be a convenient time to take an afternoon break?
25 MR. GAFFEY: I just turned to another Roman numeral,

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1 Your Honor. It's a perfect time to take a break.
2 THE COURT: Good. We'll take a break. I'm not going
3 to make a big deal about it, but we do have a cell phone policy
4 that needs to be strictly observed. There's one person, and we
5 know who you are, whose phone went off, and it was embarrassing
6 and it was intrusive and it's never going to happen again to
7 anybody here. Because the first thing you're going to do when
8 you walk into the courtroom, if you have a cell phone with you,
9 you shut it off. Clear? This is a policy that we are only now
10 experimenting with, and you can all cause us to lose the
11 privilege if it doesn't work in this case.
12 We'll take a break for fifteen minutes.
13 MR. GAFFEY: Thank you, Your Honor.
14 (Recess from 3:32 p.m. until 3:52 p.m.)
16 MR. GAFFEY: May I proceed, Your Honor?
17 THE COURT: Yes.
18 RESUMED DIRECT EXAMINATION
19 BY MR. GAFFEY:
20 Q. Mr. McDade, do you still have the asset purchase agreement
21 there? It's tab 1 in your book?
22 A. Okay.
23 Q. If I could ask you, sir, would you please turn to page 6
24 of that document, and in particular to subsection (d) in the
25 definition of "purchased assets"?

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1 A. Yes, sir.
2 Q. Take a moment and tell me when you've had a chance to read
3 through subsection (d)?
4 A. Yes, I have.
5 Q. And you see that in subsection (d) it refers to a --
6 what's defined as the "Long Positions", and it says,
7 "Government securities, commercial paper, corporate debt,
8 corporate equity, exchange-traded derivatives and
9 collateralized short-term agreements with a book value as of
10 the date hereof of approximately seventy billion." Do you see
11 that?
12 A. Yes, I do.
13 Q. And you had an opportunity to see that before Mr.
14 Birkenfeld signed it, correct?
15 A. Yeah. I've described a familiarity with this document
16 before he signed it, yes.
17 Q. Now, when you reviewed the asset purchase agreement, did
18 you give any thought to whether the Long Position was properly
19 described as book value?
20 A. I did not focus on those words, no.
21 Q. Do you know who was the proponent of the phrase, who put
22 that phrase in the agreement?
23 A. No, I do not.
24 Q. Did you have any discussion with Mr. Lowitt about the
25 description in the agreement that we're looking at?

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1 A. No, I did not.
2 Q. Did you have any discussion with Mr. Kelly about it?
3 A. No, I did not.
4 Q. Did you have any discussion with Mr. Birkenfeld about that
5 definition before Mr. Birkenfeld signed the agreement?
6 A. No, I did not.
7 Q. At the time Mr. Birkenfeld signed the agreement, the 16th
8 of September, did you have any basis to know what Mr.
9 Birkenfeld's understanding was of that definition?
10 A. Mr. Birkenfeld was informed by all of the -- all of the
11 participants in terms of the process, would be my only -- a
12 general basis of understanding.
13 Q. You did not have a specific --
14 A. I did not have a specific.
15 Q. Did you have a discussion with anyone else? We talked
16 about Mr. Kelly, Mr. Lowitt, Mr. Birkenfeld. Did you have
17 discussion with anyone else about that definition?
19 Q. And that includes the lawyers?
20 A. Correct.
21 Q. Now, as a general matter, without regard to the agreement
22 itself, was it your understanding that the Long Position was
23 being conveyed at a market value as opposed to book value?
25 Q. And that was the market value that the Lehman and the

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1 Barclays traders had come up with, yes?
2 A. Yes.
3 Q. Now, on the 16th, when this agreement was signed, did you
4 consider the transaction contemplated by the asset purchase
5 agreement to be an equivalent exchange of assets and
6 liabilities, a wash?
7 A. Including all of the value of what was contemplated, yes,
8 approximately.
9 Q. And did you understand that the deal was being made
10 pursuant to authority from the Lehman board?
11 A. I understood that we did not have permission to proceed
12 without board authorization, yes.
13 Q. Did you have any basis to think that the deal, as
14 contemplated on the 16th, was inconsistent in any way with the
15 authority that the board had given?
16 A. No.
17 Q. Now, at any point in your dealings with Barclays in
18 connection with the transaction, had you ever been told it was
19 imperative that the deal incorporate a first-day gain for
20 Barclays?
21 A. No, I was not.
22 Q. Was it contemplated by the agreement that you made that
23 there would be a gain for Barclays on acquisition?
24 A. No, it was not.
25 Q. And in the deal, as you understood it, on Tuesday,

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1 September 16th, was there any embedded gain for Barclays on day
2 one?
3 A. Using the total value of all that was included?
4 Q. In the deal as you understood it? The all-in deal, was
5 there an embedded gain for Barclays on day one?
6 A. No.
7 Q. Now, within the equivalent exchange of assets, it would be
8 included the 4.25 billion in assumed liabilities that we saw
9 before on Exhibit M-2, correct?
11 Q. Now, in your view, was the -- when you were the senior
12 member of the team, was the value of the assets Lehman was
13 going to transfer to Barclays a component -- a factor in this
14 deal?
15 A. Yes, it was.
16 Q. Now, in between the signing -- well, did you understand
17 after you reviewed the asset purchase agreement on the 16th,
18 and after Mr. Birkenfeld signed it, that it would be brought to
19 the Court to be described?
20 A. Yes.
21 Q. Did you come to court on the 17th, the first time there
22 was an appearance?
23 A. Yes. Yes, I did.
24 Q. Were you there for the whole hearing on the 17th?
25 A. Yes, I was.

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1 Q. And on the 17th, were you still of the view that the deal
2 reflected or should have reflected an equivalent exchange of
3 assets and liabilities, a wash?
4 A. An approximate equivalent of assets and liabilities, yes.
5 Q. And as you sat with the lawyers in court on the 17th, was
6 there anything that, to your mind, was inconsistent with the
7 description of the deal as an equivalent exchange of assets and
8 liabilities, a wash?
9 A. No.
10 Q. Now, after the asset purchase agreement was signed, the
11 deal changed over the ensuing couple of days. Is that right?
13 Q. Now, did you come to understand, in the course of -- let
14 me put some milestones out there so we can be more specific on
15 time. In between the hearing on the 17th and the sale hearing
16 on the afternoon of the 19th -- you attended that as well,
17 correct?
18 A. Yes, I did.
19 Q. You testified at it, right?
20 A. Yes, I did.
21 Q. Okay. So in between your attendance in court on the 17th
22 and the sale hearing -- the commencement of the sale hearing on
23 the 19th, did the deal change within those two mile posts?
24 A. Yes, it did.
25 Q. Okay. And in that time period, between the time you were

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1 in court on the 17th and the time you were in court on the
2 19th, did you come to understand that a certain repurchase
3 agreement between Lehman and Barclays had come to play a role
4 in the transaction?
5 A. Lehman had had an existing repo agreement with the Fed.
6 The Fed had requested rather urgently that Barclays take the
7 Fed's position in that repo. So, yes, I understood that.
8 Q. And did you have an understanding at the time, of what
9 repurchasing arrangement was made as between Barclays and
10 Lehman after the Fed expressed that concern?
11 A. Just a general knowledge. Not specifically involved.
12 Yes.
13 Q. Did you have enough knowledge at the time to know the
14 amount of money that Barclays advanced under the repurchase
15 agreement?
16 A. Approximately.
17 Q. How much was it?
18 A. Forty-five billion.
19 Q. And did you have enough knowledge at the time to have an
20 understanding of how much collateral Lehman gave to Barclays in
21 connection with the repurchase agreement?
22 A. Approximately.
23 Q. And how much was that?
24 A. Fifty billion.
25 Q. Now, did you have an understanding -- and again, I'm

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1 between those two mile posts, that is the end of the hearing
2 you attended on the 17th and the beginning of the hearing that
3 you attended on the 19th -- did you have an understanding as to
4 whether the repurchase agreement had become in any way a
5 component -- a center point of the deal?
6 A. Well, certainly Barclays was in a different position now
7 in the repurchase. But a component -- a significant change, it
8 was simply a different financing structure relative to most of
9 the original assets, albeit at a smaller figure.
10 Q. So by the time of the sale hearing on the 19th, did you
11 still consider the asset purchase agreement to be the governing
12 document about the transaction?
13 A. Yes. We had -- we had -- yes.
14 Q. You heard at the sale hearing on the 19th, there was some
15 descriptions of changes in the deal, correct?
17 Q. Apart from the changes in the deal that you heard -- and
18 you heard them described by Lori Fife of Weil Gotshal. Do you
19 recall that?
20 A. Yes, I do.
21 Q. And apart from the changes in the deal that you heard
22 described by Lori Fife, were there any other changes in the
23 deal of which you were aware on the 19th of September?
24 A. Not that I recall.
25 Q. Did you have any direct involvement in the steps that

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1 followed the Fed's expression of concern with regard to
2 entering into a repo with Barclays?
3 A. No, I did not.
4 Q. Okay. Who did? Who was directly responsible in those
5 issues?
6 A. Paolo Tonucci and Ian Lowitt.
7 Q. Now, did there come a time, sir, when Barclays expressed
8 the view to the Lehmanites that it was uncomfortable with the
9 value of the assets in the repo?
10 A. Friday morning.
11 Q. Can you describe to the Court the setting in which you
12 first heard Barclays' concern about the value of the assets in
13 the repo?
14 A. Very early morning on Friday, a meeting between Rich
15 Ricci, Michael Klein, the advisor, Michael Keegan, one of the
16 senior risk partners involved from Barclays, me, Alex Kirk, Ian
17 Lowitt -- I vaguely recall Paolo Tonucci, perhaps, being there.
18 Q. And what was it that the Barclays folks said about their
19 concern with the value of the assets in the repo?
20 A. Continued deterioration in the markets; some change in
21 terms of the actual assets as a result of the -- for example,
22 the residential assets now being included; some confusion
23 around JPMorgan and Barclays with respect to certain assets
24 being included; and broadly speaking, they asked very
25 specifically in terms of a need for finding more assets in

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1 order to close the transaction.
2 Q. So when Barclays expressed the need for more assets in
3 order to close the transaction, did you have any knowledge,
4 sir, as to who had conducted the valuation of the collateral in
5 the repo?
6 A. Michael Keegan -- on the Barclays side? Michael Keegan.
7 Q. Yes, sir.
8 A. Michael Keegan.
9 Q. And did Michael Keegan or anybody from Barclays share with
10 you or anybody from Lehman the valuation that was the basis --
11 the express basis of their concerns?
12 A. He was describing more generally certain of the collateral
13 that was -- he was finding it difficult to find information
14 with respect to it. So no, he didn't provide a specific
15 target.
16 Q. Now, beyond telling you that he was having trouble getting
17 specific information on some of the collateral -- I take it the
18 "him" we're talking about is Mr. Keegan?
19 A. Yes, sir.
20 Q. Beyond Mr. Keegan telling you that he was having trouble
21 getting information about specific collateral in the repo, did
22 anyone from Barclays, Mr. Keegan or otherwise, give you any
23 information about what the nature of their perceived gap was?
24 How big it was or how they had come to that value?
25 A. Large enough gap not to close the transaction, but not a

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1 specific target.
2 Q. Did they put a number on the gap?
3 A. They did not put a number on the gap.
4 Q. Did they tell you how they -- the methods that they had
5 used to determine whether there was a gap?
6 A. The specific methods? No.
7 Q. Did they show the Lehman folks any analysis or calculation
8 of the -- of a shortfall between Lehman's value on the
9 collateral and Barclays' view of the collateral?
10 A. In that meeting? No.
11 Q. Did they do it at any other time?
12 A. Not that I'm aware of.
13 Q. Did you ask them for it?
14 A. We had been going through that process from the beginning
15 of the week, so it was a continuation of the same process.
16 Q. Do you know if Barclays' expressed view about a shortfall
17 on the repo was based on its own valuations?
18 A. Certainly based on their views, yes.
19 Q. And did you see the valuations that Barclays conducted?
20 A. I did not see them specifically.
21 Q. Do you know if anyone at Lehman saw the valuations that
22 Barclays conducted?
23 A. I do not.
24 Q. Now, you've said that Barclays expressed the view that
25 there was a gap -- that may be my word not yours, sir -- but

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1 Barclays expressed a view that there was a gap sufficient that
2 it was doubtful whether it would close. Is that right?
4 Q. And how explicit was Barclays about saying it would not
5 close if this gap could not be filled?
6 A. They used those words.
7 Q. And who used those words?
8 A. Michael Klein and Rich Ricci.
9 Q. And who is Michael Klein?
10 A. Michael Klein was the advisor to Barclays -- investment
11 banker.
12 Q. And he had been one of their primary negotiators? Is
13 that --
14 A. Yes, he had. All week.
15 Q. And who is Rich Ricci?
16 A. He's -- I don't know his senior -- his title at that time,
17 but he was a significant member of the Bar Cap senior team
18 working directly under Bob Diamond.
19 Q. That's more what I'm asking about. He was another one of
20 their negotiators?
21 A. Yes, he was.
22 Q. Okay. And as best you recall, what did Mr. Klein say and
23 what did Mr. Ricci say by way of saying we're not going to
24 close unless more value is added to the deal?
25 A. Those were the words they used.

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1 Q. I got them right?
2 A. Those were -- yes, you did.
3 Q. Now, and when they said they wouldn't close unless more
4 value was added to the deal, they didn't give you a number that
5 had to be reached?
6 A. No, they did not.
7 Q. Okay. Do you know if they gave anybody at Lehman a number
8 that had to be reached in order for Barclays to go ahead and
9 close?
10 A. I don't know that.
11 Q. Did you ever ask that question of anyone else, Mr. Lowitt,
12 Mr. Kelly, Mr. Tonucci, any of the other people we've been
13 talking about?
15 Q. Now, what was the nature of the gap, as you understood it,
16 as opposed to its number? There was a gap between the amount
17 of value that Barclays was expecting to receive, correct?
19 Q. As measured against the amount of liabilities it was going
20 to assume, correct?
21 A. Exactly.
22 Q. And was it your understanding that the gap needed to be
23 filled in order to put the deal back in that rough equivalent
24 of assets and liabilities that had been contemplated back on
25 Tuesday?

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1 A. Yes.
2 Q. Was it your understanding that additional value had to be
3 added to the deal in order to bring Barclays over that balance,
4 so that there would be a gain for Barclays?
5 A. No.
6 Q. Would such a project have been consistent with your
7 understanding of the deal as you made it and as you heard it
8 described to the Court, that is, where Barclays would get more
9 than the liabilities it was assuming?
10 A. That would not have been consistent.
11 Q. And the liabilities that we're talking about at this point
12 where a gap is being filled, those included the compensation
13 and cure liabilities we talked about before, correct?
14 A. Yes.
15 Q. Okay. Now, these conversations that you've told us about
16 that took place early on Friday morning; after that Friday
17 morning meeting, did you have any more conversations with folks
18 from Barclays about the gap?
19 A. I did not. I left the headquarters and went over to the
20 office of Weil to prepare for the court hearing.
21 Q. And did you give anyone the task of dealing with this
22 issue?
23 A. I gave Alex Kirk and Ian Lowitt the task of working
24 through the issue.
25 Q. Okay. And did you come to find out whether they had

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1 worked through the issue?
2 A. We found two assets that potentially -- one of the
3 challenges we had was determining whether or not we even had
4 opportunities or options. We found two assets. One was
5 something called a 15c3, and secondarily we found unencumbered
6 assets in the clearance box -- the Lehman's clearance box.
7 Q. And do you have knowledge, sir, now, as to the amounts of
8 15c3 and unencumbered box assets that were added to the deal?
9 A. I do. 15c3, 769 million; and unencumbered assets, 1.9
10 billion.
11 Q. So the 769 million in 15c3 and the 1.9 billion in
12 unencumbered box were, in essence, added to the collateral in
13 the repo that would be transferred to Barclays, correct?
15 Q. Did you ever see a calculation of what the total effect
16 was of taking the collateral in the repo and adding on to it
17 the 15c3 and the unencumbered box?
18 A. No, I didn't.
19 Q. Did you ask anyone to do that?
20 A. No.
21 Q. Did you know the basic -- did you have an idea, sir, on
22 the Friday before the sale hearing, what the value of the repo
23 was in the collateral, as shown on Lehman's books?
24 A. The value of the repo?
25 Q. Of the repo collateral?

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1 A. Yeah. It would have equated to approximately -- again,
2 the basket of securities had changed slightly. But it would
3 have equated to the process that we went through the week in
4 terms of valuing those assets.
5 Q. I think we're missing each other. My question went more
6 to a number. Did you have an idea on the Friday of what the
7 repo collateral -- what Lehman thought the repo collateral was
8 worth?
9 A. What Lehman thought the original repo, what the nominal
10 value of the repo was?
11 Q. Yes.
12 A. It was fifty billion, approximately.
13 Q. Had Lehman's view of the value of that collateral changed
14 by Friday, just before the sale hearing began?
15 A. Yes. We were part of that process of valuing with the
16 significant changes over the course of the week. Yes.
17 Q. Do you know the criteria that was applied to the repo
18 collateral in order to determine its value?
19 A. The specific criteria? No.
20 Q. And as far as you know, no one on the Lehman side was told
21 the criteria that Barclays had applied to arrive at its idea --
22 its view of the value in the repo. Is that right?
23 A. Its criteria versus the actual --
24 Q. Market value, book value, some other measure? That's what
25 I mean by criteria.

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1 A. They were certainly using market value in terms of --
2 which is what all the risk operators had been using all week.
3 Q. So market value was used for -- as you understood it,
4 market value was used for the collateral in the repo and the
5 unencumbered box and the 15c3 asset?
6 A. Yes.
7 Q. And no other measure was used besides market value? That
8 was your understanding?
9 A. I would qualify that 15c3 was unchartered territory, and
10 so the concept of market value for a customer deposit for
11 segregated claim.
12 Q. Okay. That's a good point. So for a clear record, let's
13 just talk about the two aspects, the two repo and the
14 collateral and the assets in the unencumbered box. As far as
15 you understood, before you came into court for the sale
16 hearing, those assets were being measured at market value?
17 A. Yes.
18 Q. Yes?
19 A. Yes.
20 Q. Not book value?
22 Q. Not liquidation value?
23 A. Market value.
24 Q. Now, if Barclays doesn't give you a number, there's no
25 target, and you give folks the task of finding additional

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1 value, how do they know when to stop, sir? What's the measure
2 for when they should stop adding value to the deal?
3 A. We went through the same process over the course of the
4 week, so that the ultimate determination, find options, found
5 the two options; 15c3 was still, in our minds, of potentially
6 questionable, given it needed regulatory authority to be able
7 to be transferred over. So really we were focusing on making
8 sure that we got appropriate value for the unencumbered assets.
9 Although, obviously, both were in the transaction.
10 The process at the end was the team at Lehman at that
11 point in time, finishing the process in terms of the ultimate
12 determination of the -- you know, whether or not to include,
13 and "was there enough". There were no other assets. Lehman
14 was extremely motivated -- we were extremely motivated, given
15 what had happened in the marketplace and in the marketplace to
16 us, to move assets in this transaction, because we were in no
17 position to risk-manage assets, given all that had happened to
18 us, by market participants, and given the changes in our
19 personnel over the course of the week.
20 Q. Okay. There were some assets, that was contemplated by
21 the transaction, would be left behind, correct? Under the
22 original asset purchase agreement, it wasn't Barclays taking
23 all the assets?
24 A. I believe it was customer -- some sort of customer assets.
25 Q. Okay. And there comes a point on the Friday morning where

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1 Barclays says in sum or essence, this repo collateral is
2 worrisome, we need more. Right?
4 Q. And if we don't get more, we're not going to close, right?
6 Q. And you give Mr. Kirk, who enlists Mr. Lowitt and Mr.
7 Kelly and some others, the task of going to find more for
8 Barclays, right?
10 Q. And they go and look for more for Barclays, yes?
11 A. Yes.
12 Q. And in the meantime, you're headed down to this courthouse
13 for the sale hearing, correct?
14 A. That's right.
15 Q. And did you travel with your lawyers, or did you meet them
16 here?
17 A. I traveled with Weil. I had been at Weil's office. I
18 traveled with Weil.
19 Q. Okay. And who at Weil did you travel with?
20 A. Tom Roberts, Harvey Miller, Lori Fife.
21 Q. And at some point you learn, here in the courthouse, that
22 the project of adding additional value has been completed,
23 correct?
24 A. Correct.
25 Q. And did you learn the amount that had been added?

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1 A. I learned the amount of the unencumbered assets.
2 Q. So you learned 1.9?
3 A. Um-hum.
4 Q. Did you learn about the fact of the 15c3, if not its
5 amount?
6 A. The fact, yes.
7 Q. Okay. And did you learn that any other assets had been
8 added apart from unencumbered box and 15c3?
9 A. No.
10 Q. And did there come a point where you, sir, were
11 comfortable now that enough value had been added?
12 A. The team -- given I was part of a separate process now --
13 the team had become comfortable, yes.
14 Q. Based on the process that you've described, sir, where
15 Barclays doesn't give a target, isn't it necessary that
16 Barclays is the arbiter of when people should stop looking for
17 more value? How does Mr. Kirk, Mr. Tonucci, Mr. Kelly and the
18 others know when to stop looking for more value?
19 A. I would again, just repeat my previous answer, which is,
20 number one, we had no other assets; number two, so we had found
21 all the options; and number two (sic), we'd gone through that
22 process of working through and valuing the assets over the
23 course of the week. So there would have been a consistency in
24 terms of the approach. Clearly we were not in a great
25 negotiating position, as you described. But it's the same

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1 consistent approach in terms of making sure that we went
2 through a process of trying to ascertain the value of those
3 assets that would be due.
4 Q. Well, speaking of negotiating position, I know it was a
5 tough week from tough to finish. But did you have less
6 leverage by the end of the week than you had at the beginning?
7 Did you have less leverage just before the sale hearing began
8 than you had overnight from Monday to Tuesday?
9 A. We had very little leverage. I wouldn't describe -- I
10 don't know how to describe it as we started with an empty tank
11 and ended with one.
12 Q. You would agree with me that overnight from Monday the
13 15th into the early morning of the 16th, there was back-and-
14 forth on price, wasn't there?
15 A. There was always back-and-forth on price.
16 Q. Okay. On the Friday morning, when additional assets were
17 being added, was there back-and-forth between Lehman and
18 Barclays as to how much more needed to be added?
19 A. To the best of my knowledge, yes.
20 Q. And was there ever a point where Barclays demanded more
21 and Lehman refused, saying no, that ought to be enough for you?
22 A. No. Not in ultimately how the deal got done.
23 Q. Did you receive any communication from Mr. Kirk, giving
24 you a progress report on whether Barclays would be satisfied by
25 the additional assets?

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1 A. Right as I arrived here, I received an e-mail.
2 Q. Okay. Would you turn to tab 51 in your book, please?
3 A. Sorry, five-one?
4 Q. Five-one, yes, sir. Now, Exhibit 51 in evidence, sir, is
5 an e-mail to you from Alex Kirk at 8:09 p.m. -- I beg your
6 pardon. Take a look at the e-mail on the bottom of the chain.
7 It's from Alex Kirk to you, Friday, September 19th at 3:39
8 p.m., subject: Box. And it says, "Rich Ricci just told me he
9 won't blow up this trade by being a pig."
10 Is that the e-mail you were referring to?
11 A. Yes.
12 Q. And you received that e-mail just before you walked into
13 court?
14 A. Correct.
15 Q. Was there any other measure of Barclays' satisfaction as
16 to how many more assets needed to be added other than as
17 described by Mr. Kirk?
18 A. Measure, directly to me?
19 Q. Yes.
20 A. No.
21 Q. And did you understand when you received Mr. Kirk's e-mail
22 that the asset addition project was finished?
23 A. Yes.
24 Q. And so you understood it was finished by the addition of
25 two components: the 1.9 billion in unencumbered box, yes?

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1 A. Yes.
2 Q. And the -- what turned out to be 769 million in 15c3?
3 A. Yes.
4 Q. And to your knowledge, sir, were there any other
5 categories of assets added as part of the addition of
6 additional value on Friday?
7 A. There was a true-up of the exchange-traded derivatives.
8 Q. And do you have a number you can put on that?
9 A. I don't have a number, no.
10 Q. Now, did the -- as you -- you attended the sale hearing
11 from start to finish, I take it?
12 A. I did.
13 Q. Long day?
14 A. Yes, sir.
15 Q. At any point in your attendance at the hearing, did you
16 hear described to the Court the addition of these categories of
17 additional value, that is, 15c3 or 1.9 billion dollars in
18 unencumbered box assets?
19 A. The specific words?
20 Q. Yes, sir.
21 A. Not to my recollection.
22 Q. As the sale hearing progressed, sir, from approximately
23 three something in the afternoon until shortly after midnight
24 on the 20th, did your view change about the transaction, that
25 it was something other than an equivalent exchange of assets

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1 and liabilities?
2 A. No, it did not.
3 Q. And did your view change at any point that the measurement
4 of an equivalent exchange of assets and liabilities included
5 the liabilities to be undertaken by Barclays for comp and cure?
6 A. Just to be specific, could you repeat that?
7 Q. Well, by Friday the 19 -- let me withdraw that question
8 and put another one to you. Your understanding on Friday the
9 19th at the sale hearing was that the comp obligation -- the
10 comp liability still remained that agreed number of two billion
11 dollars. Is that right?
12 A. Yes.
13 Q. And the cure liability was still measured at 1.5 billion
14 dollars?
15 A. Yes.
16 Q. As had been described to the Court on the 17th, when --
17 A. Yes.
18 Q. -- you were at the first hearing, right?
19 A. Yes.
20 Q. And your view that the deal was still a balanced exchange
21 of assets and liabilities was premised on your understanding of
22 the value of the assets and your understanding of those values
23 of the undertaken liabilities, correct?
24 A. Correct.
25 Q. So if those assumed liabilities were lower than 1.5 and 2,

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1 that would affect the balance that you thought the deal was
2 supposed to achieve, correct?
3 A. That would have affected the rough balance, yes.
4 Q. Okay. And at any point, sir, during the course of the
5 sale hearing, before it concluded, had your view changed that
6 there was no -- that it was inconsistent with this transaction
7 that there be an embedded first-day gain for Barclays?
8 A. At -- you have to repeat -- at no point --
9 Q. Let me try and rephrase it. Did you still believe it was
10 inconsistent with the transaction that you had made, if
11 Barclays made an embedded first-day gain?
12 A. Yes.
13 Q. And you believed that throughout the sale hearing?
14 A. Yes.
15 Q. Did anything you heard at the sale hearing disabuse you of
16 that notion?
17 A. No.
18 Q. Had you heard anything during the course of the sale
19 hearing that made you think or understand that it was
20 imperative to Barclays, as a condition of closing, that it have
21 such a first-day gain?
22 A. No.
23 Q. And if it had been described as a deal that was not in
24 balance, would you, as the client, have wanted that to be
25 corrected, to be described to the Court?

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1 A. Yes, I would.
2 Q. In the discussions on the morning of Friday the 19th, when
3 Barclays was saying it would not close without additional
4 assets being added, did anyone from Barclays say to you
5 anything you understood to mean that if Barclays didn't take
6 more than a balance -- if Barclays didn't have a gain, it was
7 not going to close?
8 A. No.
9 Q. If you would turn in your book, sir, to tab 3, that's
10 Exhibit M-3 in evidence, which, for the record, is also BCI
11 Exhibit 5 -- it's the same document. Have you seen that
12 document before, sir?
13 A. Yes, I have.
14 Q. What do you recognize it to be?
15 A. A clarifying letter.
16 Q. And were you involved in any of the negotiations of this
17 document?
18 A. Yes.
19 Q. What was the nature of your involvement in those
20 negotiations?
21 A. Just continued work through the weekend, in terms of -- at
22 a conceptual level.
23 Q. In your mind, sir, did this letter agreement amend the
24 deal?
25 A. Amend the deal?

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1 Q. Yeah, did it amend the deal?
2 (Pause)
3 A. I think in concept it was meant to reflect on the changes
4 that had happened from Friday and the lack of timeliness in
5 terms of the ability to communicate in the specific new
6 document to the Court. So I don't believe, in concept, it
7 generally amended the deal.
8 Q. It was -- among its purposes was to include references to
9 the unencumbered box and the 15c3 that had not been mentioned
10 specifically in court. Is that right?
12 Q. Now, I bet I know the answer to this, but did you have
13 anything to do with actually drafting the language of the
14 letter?
16 Q. Okay. Did you review drafts of it as drafts came and went
17 over the weekend?
18 A. I reviewed -- familiarity with the document, yes.
19 Q. And would you turn to paragraph 1(c) of Exhibit M-3, the
20 clarification letter? And that's within its definition of
21 "Purchased assets." Do you see that, sir?
22 A. No, what page is that?
23 Q. On the very first page of the document, there's paragraph
24 1 "Purchased assets excluded assets."
25 A. Yes.

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1 Q. Are you with me? And then in subsection (ii) -- Romanette
2 ii --
3 A. Right.
4 Q. -- there, you see that there's a reference to the
5 definition of purchased assets in the original agreement. Do
6 you see that?
7 A. Yes.
8 Q. And you understand that to mean the asset purchase
9 agreement?
10 A. Yes.
11 Q. And without taking all your time to go through the
12 language of it, you understand that this paragraph had to do
13 with the definition of purchased assets in the sale
14 transaction, correct?
15 A. Yes.
16 Q. And did you have any involvement in the drafting of that
17 provision?
18 A. No.
19 Q. And if you would turn, sir, to paragraph 13 -- well, let
20 me ask you first, did it ever come to your attention, sir, that
21 the repurchase agreement between Lehman and Barclays had been
22 terminated on Friday when LBI filed?
23 A. No, it did not come to my specific attention at that time.
24 Q. Did it ever come to your attention that the repo had been
25 terminated?

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1 A. Not at that point in time.
2 Q. Did there come a point when you did learn that the repo
3 had been terminated?
4 A. Yes.
5 Q. When was that?
6 A. Through the process of reviewing -- looking back.
7 Q. Just so we're clear, we're not talking about over the
8 weekend? At some point after?
9 A. Correct, after the weekend.
10 Q. Okay. Weeks, months?
11 A. Months.
12 Q. Months, okay. So over the weekend, when you're involved
13 in the negotiation of the clarification letter, are you not
14 aware that the repo's been terminated?
15 A. I was not specifically aware that it had been technically
16 terminated, no.
17 Q. Take a look, if you would, at paragraph 13 of the
18 clarification letter, entitled "Barclays repurchase agreement."
19 And as I've asked you before, sir, just take a look through it
20 sufficiently to tell me you've read it through and have some
21 idea of its terms.
22 A. Yes, I see it.
23 Q. Got a chance to do that?
24 A. Yes, I have.
25 Q. Did you focus on that paragraph of the clarification

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1 letter, at any point over the weekend of the 20th and the 21st
2 of September 2008?
3 A. Just the fact that it had been included.
4 Q. Apart from noting that it had been included, did you have
5 any discussions with anyone from Barclays about the need for
6 that paragraph?
7 A. No, I did not.
8 Q. Did you have any discussions with any lawyers representing
9 Lehman about the need for that paragraph?
11 Q. Was there any discussion with anyone about the need for
12 that paragraph?
13 A. No.
14 Q. If you would turn, sir, to -- let's take it all the way
15 through. Now, the sale hearing has been held. You understood
16 that an order had been issued by Judge Peck approving the
17 transaction, correct?
19 Q. And then through the weekend that followed, the 20th and
20 the 21st, you worked on the clarification letter, correct?
21 Yes?
22 A. Yes.
23 Q. Did you go to the closing?
24 A. I did not go to the closing.
25 Q. Okay. Were you in touch with Mr. Kelly over that weekend

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1 at all?
2 A. I don't recall if Mr. Kelly was at the offices of Weil on
3 Sunday.
4 Q. Okay.
5 A. I don't have a recollection of that.
6 Q. Just so we're in -- connecting here sir, were you in touch
7 with him at all over the weekend, Weil Gotshal's offices or
8 otherwise?
9 A. Right. I don't have a recollection of being in touch with
10 him.
11 Q. Were you in touch with Paolo Tonucci?
12 A. Yes, I was.
13 Q. Were you in touch with Gerard Reilly?
14 A. No, I was not.
15 Q. Were you in touch with Brett Beldner?
16 A. I don't know that individual, no.
17 Q. Were you in touch with Ian Lowitt?
18 A. Yes, I was.
19 Q. And at any point, did Mr. Lowitt or Mr. Kelly inform you
20 that they were working on an opening balance sheet along with
21 folks from Barclays to reflect the financial consequences of
22 the transaction, as they understood it?
23 A. No.
24 Q. Okay. Would you take a look at Exhibit 74, it's tab 74 in
25 your book there. Have you had a chance to look at that

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1 document, sir?
2 A. Yes, I have.
3 Q. Do you recall I showed you a copy of that document at your
4 deposition?
5 A. Yes, I did.
6 Q. And that was -- it seems like so long ago, sir, but it was
7 September 2, 2009?
8 A. Yes.
9 Q. Prior to September 2, 2009, had you ever seen the opening
10 balance sheet?
11 A. I had no recollection of seeing it prior to that.
12 Q. And prior to September of 2000 -- at or around the time of
13 the closing, did you see any opening day balance sheets that
14 were prepared to reflect any gain or loss that Barclays might
15 have on the transaction?
16 A. I have no recollection.
17 Q. I'm going to ask you take a look at Exhibit 74, which is
18 in evidence, which is also BCI Exhibit 269, for the record, and
19 ask you first to look at the names across the top, to whom the
20 e-mail is addressed. Do you know Gary Romain or James Walker?
21 A. No, I do not.
22 Q. And if you take a look at the balance sheet, sir, you'll
23 see that the total assets shown are 52.88 billion dollars. Do
24 you see that?
25 A. Yes, I do.

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1 Q. Was that your conception of the total value of assets that
2 had been transferred to Barclays from Lehman as part of the
3 sale transaction?
4 A. Not including the cash.
5 Q. Okay.
6 A. The cash would be inaccurate.
7 Q. And you see a calculation for accrued bonuses that goes
8 across the line to show a two billion dollar item. Do you see
9 that?
10 A. Yes, I do.
11 Q. And you see a line for cure payments that goes across the
12 line to 2.25 billion dollars. Do you see that?
13 A. Yes, I do.
14 Q. Do you recognize those two items to be the values that
15 were put on comp and cure in the original September 16th
16 financial schedule?
17 A. Those reflect the original, yes.
18 Q. Okay. Now, the calculations of this opening day balance
19 sheet show an equity position for Barclays of 3.38 billion
20 dollars. Do you see that?
21 A. Yes, I do.
22 Q. Now, if there had been an equity component in the deal on
23 the opening day of 3.38 billion, the deal would not be in
24 balance. Is that correct?
25 A. The deal would not be in balance using all of the assets

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1 and liabilities as we collectively defined the total value of
2 the transaction. That's correct.
3 Q. And the deal you made was one to be in balance, correct?
5 Q. So if the opening day balance sheet for the deal reflected
6 that Barclays had 3.38 billion in equity, that would not be
7 consistent with the deal you made, would it?
8 A. That's correct. But these numbers don't reflect the
9 specific parts of that deal.
10 Q. Did Mr. Kelly ever inform you or anyone else, as far as
11 you know, that he was working on an opening day balance sheet
12 for Barclays?
13 A. He did not inform me, to the best of my knowledge.
14 Q. And just turning your attention back to Exhibit 74, sir,
15 to the balance sheet itself, do you see the item for cure
16 payments? I'm just directing your attention to that line.
17 A. In the same document?
18 Q. Yes, sir.
19 A. Yes.
20 Q. Do you see after that it says, "Placeholder for actual
21 accrual"? Do you have any idea what that meant?
22 A. No. I've not seen the document, so I can't --
23 Q. At any point during that week, had it ever come to your
24 attention that the number for cure was just a placeholder for
25 the actual accrual?

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1 A. No. We were trying to determine the accurate figures, as
2 I described before.
3 Q. And the accurate figure would be the amount that Barclays
4 was most likely going to have to undertake?
5 A. Potential to undertake.
6 Q. Okay. And the accrued bonuses of two billion dollars, it
7 says "assumed to be all accrued." Do you have an idea of what
8 that would mean?
9 A. No, I do not.
10 Q. At any point during the week, from the time that you were
11 involved in the initial negotiations through the sale hearing,
12 had you had any concept or had anybody ever said anything to
13 you that that two billion dollars was anything other than a
14 full requirement for Barclays to pay?
15 A. It was a full requirement.
16 Q. If you would turn your attention, sir, to tab 100 in your
17 book, which is Exhibit M-100 in evidence, also BCI Exhibit 132
18 in evidence. You'll see it's a Barclays results announcement
19 for 2008. If I could ask you, sir, to turn to page 95 of that
20 results announcement. And again, I'll ask you to just skim,
21 sir, directing your attention to the item marked number 11,
22 "Acquisitions." If you'd just read through it enough to become
23 roughly familiar with it. There's a particular provision to
24 which I want to direct your attention. Let me know when you've
25 had a chance to look at that.

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1 (Pause)
2 A. Okay.
3 Q. Directing your attention, sir, to the penultimate
4 paragraph on that page. I'll read it into the record: "The
5 excess of the fair value of net assets acquired over
6 consideration paid resulted in 2.262 billion pounds sterling of
7 gains on acquisition."
8 I'll represent to you, sir, that that translates to about
9 4.2 billion dollars on that day. Was a 4.2 billion dollar gain
10 derived from excess of the fair value of net assets acquired
11 over consideration paid on acquisition, contemplated by the
12 deal you made?
13 A. No.
14 Q. Did anybody ever suggest otherwise to you in the period
15 between September 15th, when the negotiations began, and the
16 conclusion of the sale hearing, at shortly after midnight on
17 the 20th of September?
18 A. No.
19 Q. Did anybody ever suggest otherwise to you in the period
20 between the end of the sale hearing, shortly after midnight on
21 the 20th of September and the closing on the 22nd of September?
22 A. No.
23 Q. Did anybody ever suggest that to you at any other time?
24 A. The first I saw it was when we talked about it at the
25 deposition.

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1 Q. That would be September of 2009?
2 A. Correct.
3 Q. Now, in that provision, sir, there's a reference to the
4 fair value of net assets. Was that part of your calculus in
5 determining whether or not the deal was a wash?
6 A. I can't comment on the term used in Barclays document.
7 Q. I think I'm confusing the picture here.
8 A. Okay.
9 Q. Shut the book. Let's not talk about that document. I
10 want to get -- I want to know what your conception was, Mr.
11 McDade. When you had reached your conclusion that the deal was
12 a wash, that it was a rough equivalent exchange of assets and
13 liabilities, you took into account that the liabilities had
14 some value, correct?
16 Q. So the deal couldn't be done irrespective of the value of
17 those liabilities, correct?
19 Q. And the formula you had to determine whether it was an
20 equivalent exchange of assets and liabilities took into account
21 the value of the assets, correct?
22 A. Yes.
23 Q. So the deal that you agreed couldn't have been done
24 irrespective of what the value of the assets was. Is that
25 correct?

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2 MR. GAFFEY: I have nothing further, Your Honor.
3 CROSS-EXAMINATION
4 BY MS. TAGGART:
5 Q. Good afternoon, Mr. McDade. I'm Erica Taggart from Quinn
6 Emanuel Urquhart & Sullivan, and I'm representing the
7 committee. I think we met at deposition.
8 I'd like to begin by -- get a little bit of a better
9 understanding of how the balance sheet that you spoke to
10 corresponds to some of the categories in the asset purchase
11 agreement.
12 MS. TAGGART: So if you can bring up the asset
13 purchase agreement, and that I believe is M-1.
14 Q. And in particular, if you can look at page 6. I believe
15 that's where Mr. Gaffey took you through some -- one of the
16 definitions of purchased assets. And if you'd look at Exhibit
17 D, that was the part that talked about a number of assets:
18 government securities, commercial paper, those collectively the
19 Longs that was approximately seventy billion dollars. Do you
20 see that?
21 A. Yes, I do.
22 Q. But there were other assets that went over into the deal
23 to Barclays, even as contemplated in the asset purchase
24 agreement, right? And I'll help. If you look right after that
25 in subsection (e), it talks about other assets. That's the

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1 fifty percent of each position in the residential real estate
2 mortgage securities. Do you see that?
3 A. Yes, I do.
4 Q. And as of the deal, at least, of September 16th in the
5 asset purchase agreement, was it contemplated that both those
6 assets described in (d) that says -- described as the book
7 value of seventy billion, and the assets in (e), the fifty
8 percent of the residential real estate mortgage securities,
9 would be going to Barclays?
11 Q. So now I'd like to turn to the balance sheet that you
12 spoke about. And so I believe that's Trial Exhibit 2 and M-2
13 in your binder. And I think you testified to Mr. Gaffey that
14 these are the numbers that the deal was based on, as of the
15 16th. Is that right?
17 Q. And in this deal, are also the value of the fifty percent
18 mortgage securities that are defined in that section (e) also
19 reflected in this balance sheet?
20 A. The 2.7 represents the fifty percent.
21 Q. Okay. So looking -- that's on the third category under
22 "Assets", there's a listing, "Mortgages 2.7." Is that what
23 you're referring to?
24 A. Yes, I am.
25 Q. And does that show the value that at least was subject to

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1 this agreement that you testified, about the fifty percent
2 mortgages, was 2.7 billion dollars. Is that right?
4 Q. So, in order to get to the 72.65 that's the total assets
5 at the bottom, would you be taking the 70 billion of the Long
6 Positions plus the 2.7 mortgages, and that's how you get that
7 72.65, right?
9 Q. And as of the 16th, you still were contemplating, as it
10 shows, this balanced transaction? Assets were going to equal
11 liabilities?
12 A. Um-hum.
13 Q. Is that right?
14 A. Yes.
15 Q. And I just want to confirm, then, that includes, with all
16 the purchased assets in subsection (d) and in (e), including
17 the residential mortgages securities, all those assets, it was
18 still contemplated those would be balanced by liabilities,
19 right?
20 A. Yes.
21 Q. Okay. Now, I want to talk -- switch gears to when you
22 talked about later in the week where the -- where Barclays
23 takes over the Fed, right? And they take over the Fed
24 repurchase agreement and they end up owning basically the same
25 securities that were pledged as part of that repurchase

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1 agreement. Do you remember that?
2 A. Yes.
3 Q. You testified that as of Thursday, September 17th, Lehman
4 thought the repo collateral was worth the nominal value of
5 fifty billion dollars, right?
6 A. Correct.
7 Q. And I think you told Mr. Gaffey, but then there was part
8 of a valuation process reflecting significant changes over the
9 course of the week, and that happened the next day, right?
10 A. No. You'll have to repeat that question. We started that
11 process at the beginning of the week.
12 Q. But there was a process on September 19th where there was
13 a negotiation between Lehman and Barclays of what was the value
14 of the collateral that Lehman received when it took over the
15 Fed repurchase transaction, right?
17 Q. And if I remember right, you were involved in the
18 process -- setting up the process, but then you weren't
19 involved in the negotiations, right?
21 Q. You, I think -- you set up early-morning some people to
22 take care of it, like you were directing traffic, and then you
23 had other things to deal with, right?
25 Q. And Alex Kirk was one of the people that you directed to

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1 deal with it?
2 A. Yes, he was.
3 Q. What was the number that was reported back to you as the
4 result of the negotiations that Lehman had determined, after
5 negotiating, it was going to assign to the value of the repo
6 collateral that went to Barclays?
7 A. That Lehman had determined?
8 Q. Yes.
9 A. Prior to those negotiations?
10 Q. No, after. If I remember right, the -- on Thursday when
11 they take over the Fed, Lehman thinks the nominal value is
12 fifty billion dollars, right?
13 A. Lehman no longer thinks. Lehman's had a process with
14 Barclays over the course of the week with the valuing of those
15 assets.
16 Q. Yeah. But the assets are --
17 A. That's --
18 Q. Well, let me talk about -- what was the time when you told
19 Mr. Gaffey what Lehman thought the repo collateral is worth was
20 a nominal value of fifty billion dollars? What point in time
21 is that?
22 A. The original repo done with the fed had a nominal value of
23 fifty billion dollars.
24 Q. Okay. And do you know what time that valuation was? The
25 fifty billion valuation?

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1 A. I believe that happened Monday morning, that repo.
2 Sometime Monday.
3 Q. Okay. There was a process, though, that happened on
4 Friday that started, I believe, with -- Barclays' negotiators
5 came and said they weren't comfortable with the amount of value
6 that was in that repo. Do you remember that?
7 A. Yes, I do.
8 Q. And I think you were at the beginning of the meeting where
9 you started discussing how we're going to have negotiations and
10 what are we going to assign the value of the collateral that
11 now Barclays has taken over in the repo, right?
12 A. Right.
13 Q. And going into the sale hearing later that day, you do
14 hear a result from your team about the value of the assets
15 determined in a negotiation process for what the value of the
16 collateral that Barclays took for the repo, right?
18 Q. What was that number?
19 A. I don't hear a specific number. So the repo had been
20 valued by the two teams at approximately the forty-five billion
21 going into Friday morning, the repo collateral, and there was
22 new collateral which wasn't a hundred percent consistent with
23 the original balance sheet which caused the new Barclays' view
24 plus the continued changes in the marketplace, no specific
25 number was put because Mr. Keegan and his partners were having

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1 a touch time determining some of the new collateral that was
2 included from the confusion around J.P. Morgan and the clearing
3 bank confusion. But the ultimate determination, now to get to
4 your answer, had to be that the team, who wasn't there, had to
5 determine that the 1.9 and the 15c3 was the difference in the
6 value of the collateral.
7 Q. I want to know about the forty-five. Putting aside the
8 15c3, the unencumbered box, isn't it right that your deal team
9 and Barclays' deal team went through a process to value the
10 assets that went to Barclays as part of the Fed repo and
11 concluded out of that process the value was forty-five billion
12 dollars?
13 A. To the best of my knowledge, yes.
14 Q. Okay. And that is -- when you heard it, it was your
15 understanding that that was the market value of that
16 collateral, is that right?
18 Q. And your understanding of market value is the ability to
19 transact securities of a normal lot size in the marketplace, is
20 that right?
21 A. That's right.
22 Q. Now, I want to show you an exhibit. And I'm afraid,
23 because Mr. Gaffey didn't use it, it wasn't in your binder, but
24 I have a copy.
25 MS. TAGGART: May I approach?

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1 THE COURT: Yes, you may.
3 MS. TAGGART: And I'm showing the witness what's been
4 marked as Movants' Trial Exhibit 694.
5 Q. And first, I just want you to identify this. At the top,
6 is it an e-mail from Alex Kirk dated November 19th, 2008?
7 A. Yes, it is.
8 Q. And it is forwarding an e-mail from Daniel Flores (ph.)
9 that copies you, Bart McDade, is that right?
10 A. Yes, it does.
11 Q. And that one's of Thursday night, September 18th, 2008.
12 A. Um-hmm.
13 Q. Is that right?
14 A. Yes.
15 Q. And who's Daniel Flores?
16 A. I don't -- he's a Lehman employee. I don't know his
17 specific role.
18 Q. Okay.
19 MS. TAGGART: I request that this exhibit be moved in
20 evidence.
21 THE COURT: Are there any objections?
22 MR. BOIES: Objection on hearsay grounds, Your Honor.
23 MS. TAGGART: I think that I'm not using it for the
24 truth of the matter. I am using it for the state of mind of
25 Mr. McDade, in particular, the information that he received

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1 before he went into the sale hearing and the basis of his
2 testimony, not the truth of what's said here.
3 MR. BOIES: Your Honor, we withdraw the objection on
4 that grounds.
5 THE COURT: I'm sorry. What?
6 MR. BOIES: We withdraw the objection if that's the
7 limited purpose for which it is offered.
8 THE COURT: All right. Fine. It --
9 Q. So I'd like to draw your attention to --
10 THE COURT: Would you like me to admit it?
11 MS. TAGGART: Excuse me? Yes. May I admit this
12 THE COURT: It's admitted.
13 MS. TAGGART: -- then as Movants' Trial Exhibit 694?
14 THE COURT: Okay. I know you're eager to get to the
15 next question but it's admitted.
16 MS. TAGGART: Okay. I am eager.
17 (E-mail from Alex Kirk dated 11/19/08 was hereby received into
18 evidence as Movants' Trial Exhibit 694, as of this date.)
19 BY MS. TAGGART:
20 Q. Okay. So I'd like to look at this e-mail. Let's take the
21 top paragraph. And it says "Alex Kirk suggested we contact
22 each of you to help us understand, on a theoretical basis, what
23 would happen in a fire sale liquidation of the securities that
24 are being transferred to Barclays as part of the proposed
25 transaction. The question is what these securities could be

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1 sold for such a scenario." Do you see that?
2 A. Yes, I do.
3 Q. And Alex Kirk, in fact, is the person that you gave your
4 proxy to negotiate with Barclays on the issue of value, isn't
5 that right?
6 A. As of Friday morning.
7 Q. Yes. Is that correct?
8 A. Yes.
9 Q. Yes. But it was your understanding when you testified at
10 the sale hearing that Alex -- well, I'll ask. Was it your
11 understanding when you testified at the sale hearing that Alex
12 Kirk had actually used a fire sale process to calculate the
13 positions for the different categories of assets?
14 A. Had used a fire sale process. We used a process with
15 Barclays. Alex Kirk wasn't part of any of that process up
16 until Thursday evening when I asked him to help because I knew
17 I had to be in court the next day. So Alex Kirk was not part
18 of any process over the course of the week.
19 Q. But Alex Kirk was part of the process on September 19th
20 that had your proxy to calculate the value of the Fed repo
21 collateral, isn't that right?
22 A. He was part of a -- he was part of the process and had my
23 proxy to finish off the process that had already begun and
24 continued through the week.
25 Q. Before the hearing on the 19th when you testified, did you

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1 have any knowledge of a project where Alex Kirk suggested that
2 fire sale liquidation prices be calculated for the top hundred
3 positions of those different categories?
4 A. Well, I see I'm CC'd on this e-mail, yes.
5 Q. But that was -- sir, go ahead.
6 A. But that's the entire basis of -- and I have no
7 recollection of the specific process.
8 Q. And was there any discussion that your testimony at the
9 sale hearing was to address fire sale prices for securities?
10 A. No.
11 MS. TAGGART: That's all.
12 MR. MAGUIRE: If it please the Court.
14 BY MR. MAGUIRE:
15 Q. Mr. McDade, Phil Maguire for the SIPA trustee. I'd like
16 to follow-up, sir, on some questions that Mr. Gaffey asked you
17 on the subject of what have I done on the Friday in terms of
18 finding additional sources of value or additional assets for
19 Barclays. And if I understand, there were -- your team, in the
20 course of its work on that day, found two additional assets
21 that they felt could be provided to Barclays. Is that correct?
23 Q. Of course, Barclays, all this time, was doing due
24 diligence, continued due diligence on the entire sale. But the
25 two additional assets were the c3 asset and what you've

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1 referred to as the unencumbered box --
3 Q. -- is that correct?
5 Q. With respect to the c3 assets, I believe you mentioned
6 that you were in unchartered waters, that there were some
7 regulatory issues?
8 A. Yes. It was a new term to me and all of the front end
9 risk business operators, this whole concept of the comfort
10 cushion. So we had started a process as we had tried to
11 identify all potential opportunities earlier on in the week.
12 It became quickly apparent that we would need regulatory
13 approval for any such -- a contemplation of any such
14 transaction.
15 Q. And when you refer to regulatory approval, is there anyone
16 in specific that you had in mind?
17 A. The SEC.
18 Q. You understand that 15c3 is a rule that's promulgated by
19 the SEC?
20 A. Yes.
21 Q. And when you say SEC, we're referring to the Securities
22 and Exchange Commission.
23 A. Yes. I'm sorry.
24 Q. You referred to "comfort cushion". Can you tell me what
25 you're referring to there?

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1 A. It's just my term for what I understood the segregated
2 assets, the broker dealer needed a requirement in terms of
3 having a deposit or a cushion with respect to those segregated
4 assets.
5 Q. And you understood that the assets that were segregated in
6 the c3 account were assets that were held by Lehman for the
7 exclusive benefit of customers?
8 A. Yes, we did.
9 Q. Sir, I'd like to show you a document that we have marked
10 as Movants' Trial Exhibit 453.
11 MR. MAGUIRE: Your Honor, if I might approach?
12 THE COURT: Yes. Thank you.
13 Q. Sir, is this exhibit an e-mail that you received on or
14 about 12:59 a.m. on Monday, September 22nd --
15 A. Yes --
16 Q. -- 2008?
17 A. Yes, it is.
18 Q. So this is just a few hours before the closing of the
19 transaction?
20 A. Yes.
21 Q. And can you tell us who is Chris O'Meara?
22 A. Chris O'Meara was the chief risk officer at the time at
23 Lehman.
24 Q. The subject of this e-mail is 15c3-3?
25 A. Yes.

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231
1 Q. You understood that to be referring to this additional
2 asset?
3 A. Yes.
4 Q. Mr. O'Meara reports to you "Good progress on this day. We
5 just gave Ian the download." Can you tell us to whom you
6 understand the reference to be there?
7 A. Ian Lowitt, our CFO.
8 Q. "The lawyers say they have enough to go on. The Lehman
9 regulatory team and the Barclays regulatory team have had two
10 meetings on this today and will have one more tonight once the
11 remaining big reconciliation break has been solved. Barclays'
12 reps are much more comfortable than this AM, but still
13 substantial challenges. I think they are manageable.
14 We spoke with SEC as well to tell them the plan and
15 explain that some amount of the excess, 15c3-3 lockup, is part
16 of the purchase price consideration."
17 Sir, can you please tell us whether that summary that Mr.
18 O'Meara gave of his presentation or discussion to the SEC is
19 consistent with your understanding of the deal?
20 A. Yes, it is.
21 Q. It was your understanding that what was proposed here was
22 to provide some amount of the excess, 15c3-3 lockup, as part of
23 the purchase price consideration?
24 A. Yes.
25 Q. Can you please tell the Court whether that deal, that --

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232
1 what was described to the SEC just hours before the closing,
2 whether that ever changed? And specifically, whether Lehman
3 ever agreed unconditionally to give Barclays any assets from
4 the 15c3 account?
5 A. To the best of my knowledge, the deal did not change. And
6 certainly, Lehman was in no position either with other assets
7 or touching a segregated client asset. It obviously needed
8 regulatory approval for anything that we did with respect to
9 this as any consideration in the transaction.
10 Q. Sir, I'd like to ask you some questions now about Lehman's
11 relationship with the Depository Trust & Clearing Corporation.
12 You understood that the DTC, or DTCC as it's sometimes referred
13 to, was in a position to shut Lehman down?
14 A. Yes, I did.
15 Q. Can you explain how that was?
16 A. Over the course of late into the week, DTC had become
17 concerned with Lehm -- the combination of Lehman's own
18 abilities to operate and the potential risk from the hundreds
19 of thousands of trades that were in front of the DTC in normal
20 course of business. They had also, I think, become concerned
21 with respect to J.P. Morgan starting to make clear that they
22 were not, as our clearing bank, going to be proceeding to help
23 clear transactions. So the combination of the two made it
24 pretty apparent to our finance and operations team of senior
25 professionals that we would, in effect, be completely shut from

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233
1 being able to transact, they being the -- if you will, the
2 lifeline of all market settlements.
3 Q. And did there come a time when you understood that
4 Barclays offered DTC a limited guaranty of 250 million dollars
5 against the liabilities that Lehman had to the DTCC?
6 A. DTC asked Barclays to step into the shoes of Lehman.
7 Barclays' initial response -- I learned that, yes, over the
8 weekend. Barclays' initial response was to cap that exposure
9 at 250 million.
10 Q. And can you explain to the Court how the DTC's insistence
11 on getting an unlimited guaranty and Barclays' willingness to
12 provide only a 250 million dollar limited guaranty threatened
13 the transaction over the weekend?
14 A. There were many points during the day on Sunday where
15 despite the court hearing and approved process where I and the
16 team felt that we were not going to close the transaction as a
17 result of this issue.
18 Q. Did you come to learn that Barclays had secured a separate
19 agreement with the DTCC?
20 A. The Lehman team was excluded from all the dialogue with
21 DTC, Barclays, the regulators with respect to this. But, yes,
22 I came, in general terms, to learn that that was the case.
23 Q. And can you tell us when you came to learn that?
24 A. That would have been some combination of the day Sunday
25 turning into Monday, late, if not early, Monday morning.

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234
1 Q. And when you say your Lehman team was excluded from this
2 process, can you explain what you mean by that?
3 A. Put in a room. Not allowed to be part of the process.
4 Q. And can --
5 A. Moved out of the conversation.
6 Q. And can you tell us physically how that happened, how you
7 were not part of the conversation?
8 A. We were asked to sit in a different conference room at
9 Weil.
10 Q. And was it made clear to you that you were not invited
11 into the room where any of the DTC discussions were going on?
12 A. Extremely clear.
13 Q. And who made that clear?
14 A. The Barclays team.
15 Q. Sir, I'd like to ask you a few questions about Lehman's
16 margin assets. And by margin assets, what I'm referring to is
17 Lehman's cash, cash equivalents and government securities that
18 it posted as collateral at clearing firms.
19 A. Okay.
20 Q. Can you please tell the Court whether Lehman's margin
21 assets were included in the sale?
22 A. They were not intended to be included in the transaction.
23 Q. Did you ever authorize any agreement with anyone at
24 Barclays to include any Lehman cash margin in this sale?

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235
1 Q. If I could ask you to turn to Movants' Exhibit 2 which you
2 have referred to a number of times in your testimony today.
3 And if you look, sir, at the "Assets" side, you'll see just
4 close to the bottom of the first half of that column on the
5 left, you see "Derivatives", four and a half billion dollars.
6 A. Yes, I do.
7 Q. That's exchange traded derivatives?
8 A. Yes.
9 Q. And if you look over -- it's not quite in line but just a
10 line below, under "Liabilities", you'll see another entry for
11 "Derivatives", four and a half billion dollars.
12 A. Yes, I do.
13 Q. Can you explain for the Court, please, what is the
14 difference between exchange traded derivatives that are worth
15 four and a half billion dollars on the "Asset" side from
16 exchange traded derivatives that are a liability on the
17 "Liability" side?
18 A. Those are long and short inventory positions.
19 Q. And if you look just below "Derivatives" on the "Asset"
20 side, sir, you'll see a reference to "Cash".
21 A. Yes.
22 Q. And that's in the amount of 700 million dollars?
23 A. Yes, it is.
24 Q. And what was the deal with respect to that cash?
25 A. The retained cash in the original form was going to be

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236
1 part of the consideration that, at that moment in time, was
2 our -- Tuesday morning before court on Wednesday -- that was
3 the assumed amount of cash at that point in time.
4 Q. So under the original deal, there was not only a purchase
5 of assets but there was also, at least to this minor extent, a
6 purchase of Lehman cash?
8 Q. And what happened to that retained cash?
9 A. That retained cash was ultimately moved away from Lehman
10 during the course of the week as a result of market activities.
11 One specific activity that would have affected would have, it
12 would have been the CME -- liquidation of the CME positions
13 that we had had. So that cash was affected by any transaction
14 that took place over the course of that week. And so, it ended
15 up at zero by the time of the sale hearing.
16 Q. When you say "it", you're saying --
17 A. Cash.
18 Q. -- in terms of Lehman's obligation to provide any of its
19 cash to Barclays, that was zero by the time of the sale
20 hearing?
21 A. Yes. I'm sorry. Yes.
22 Q. And apart from this retained cash which was ultimately
23 taken out of the deal, was there any Lehman cash, cash
24 equivalents, government securities that you understood were
25 being transferred to Barclays?

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237
1 A. No.
2 MR. MAGUIRE: Thank you, sir. No further questions.
3 THE COURT: In terms of scheduling, I don't know if we
4 have a long cross-examination of this witness or not. But it's
5 five after 5 and I need to stop today at 5:30. We can either
6 go for twenty-five minutes and break at a logical place or we
7 can come back tomorrow morning.
8 MR. BOIES: Your Honor, whatever the Court prefers.
9 THE COURT: If you're ready to go, let's use the
10 twenty-five minutes.
11 MR. BOIES: Okay. Thank you, Your Honor.
13 BY MR. BOIES:
14 Q. Good afternoon, Mr. McDade.
15 A. Good afternoon.
16 Q. I don't think we've met but my name is David Boies and I
17 represent Barclays.
18 A. Nice to meet you.
19 Q. Let me begin by asking you to look at a document that's in
20 your book. It is Movants' Exhibit 74. Do you have that?
21 A. Yes, I do.
22 Q. And it is a cover e-mail and then there is an attachment.
23 And let's go to the attachment because that's mostly what you
24 were asked about. You said in response to a question that
25 there were parts of the deal that were not reflected here. Do

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1 you recall that?
2 A. Not reflected accurately, yes.
3 Q. Not reflected accurately.
4 A. Yes.
5 Q. And would you tell me what parts of the deal either are
6 not reflected or not reflected accurately on this schedule?
7 A. Cash, 15c3, cure payments. And there was no concept of
8 equity.
9 Q. Now, did you ever see a copy of this in the regular course
10 of business?
12 Q. Do you have any understanding at all how this erroneous
13 schedule got to be prepared?
14 A. No, I do not.
15 Q. If somebody had shown you this at the time, you would have
16 said this is erroneous, is that correct?
18 Q. Let me turn next to the document that was just handed up
19 to you which is Movants' Exhibit 694. Do you have that?
20 A. Yes, I do.
21 Q. Now, this is a document that you did get. You don't
22 recall receiving it but you have no doubt you got it, correct?
23 A. I have no doubt I got it.
24 Q. And is there anything here that is in any way inconsistent
25 with anything the Court was told while you were present?

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1 A. No.
2 Q. With respect to the reference of liquidation values, would
3 it be the case that, in general, liquidation values would be
4 materially less than what you refer to as fair market value?
5 A. You talking about distress values or liquidation values?
6 Q. Liquidation values.
7 A. It really depends on the asset class. So if you're
8 talking about liquidation value of a government security, it
9 should reflect -- it should reflect -- it just depends on the
10 liquidity of the asset class and the market divisions.
11 Q. Let's talk about the asset classes that Lehman had the
12 week of the 15th of September 2008. Now, with respect to those
13 asset classes, were some of those asset classes liquid and some
14 of those asset classes illiquid?
15 A. Yes, they were.
16 Q. And what percentage of Lehman's assets at the time of the
17 Barclays transaction were represented by illiquid assets?
18 A. Inventory of all of Lehman?
19 Q. All of the assets that were subject to the Barclays
20 transaction.
21 A. I would say approximately twenty percent.
22 Q. And with respect to those assets, would the liquidation
23 value be materially less than what you would refer to as the
24 fair market value?
25 A. Yes.

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1 Q. With respect to the eighty percent of Lehman's assets that
2 were not illiquid, according to your testimony, am I correct
3 that the liquidation value would be approximately the same as
4 what you refer to as the fair market value?
5 A. In normal times. That week was an unusual week in terms
6 of the nature of what was not happening in terms of the markets
7 away from Lehman.
8 Q. And the unusual character of the markets would affect both
9 the calculation of fair market value and a calculation of
10 liquidation value, correct?
11 A. Yes. I would agree with that.
12 Q. And given the unusual characteristics of that week,
13 although both might have been affected, would both liquidation
14 value and fair market value have been approximately the same
15 for the eighty percent of Lehman's assets that were illiquid?
16 A. It would have been closer than in normal times. It's hard
17 for me to speculate in terms of the specifics of your question.
18 Q. When you say "closer", can you just explain what you mean
19 by that?
20 A. It would have been a further move away from the normal
21 fair market price for execution of a transaction. Lower.
22 Q. Okay. I think I understand but I want to be clear.
23 Because of the unusual circumstances of the week of September
24 15th, even with respect to liquid securities, the liquidation
25 value of those securities would be lower compared to fair

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241
1 market value than would be the case in ordinary circumstances,
2 correct?
3 (Pause)
4 Q. Your hesitation suggests I've got it wrong. And I don't
5 mean to suggest an answer.
6 A. I believe if you ask five market participants they'll give
7 you different definitions of the terms that we're using.
8 That's why I'm struggling. A liquid asset class in normal
9 times would trade reasonably efficiently, type it all for large
10 volume. And that would imply a reasonably close execution to
11 these liquid assets to the fair market value. In this week, if
12 you're asking me the question does that relationship no longer
13 hold for liquid assets, the answer is yes. It would be
14 closer -- it would be a wider bid offer on those
15 transactions -- on those securities and therefore more erosion
16 from fair market value in a negative sense.
17 Q. I think I understand but I'm going to try it again. And I
18 am, in fact, going to say something that was the opposite of
19 what I said before. Are you saying that in the unusual times
20 of the week of September 15th for liquid assets the liquidation
21 value is closer to fair market value than it would be in
22 ordinary times?
23 A. Yes.
24 Q. Thank you. Is that also true for illiquid assets? That
25 is, there would be this differential but there will be less of

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1 a differential between fair market value and liquidation value
2 than it would be in ordinary times?
4 Q. And I think, but correct me if I'm wrong, that must mean
5 that the unusual market circumstances of September 15th had a
6 proportionally greater effect of depressing fair market value
7 prices than it did depressing liquidation value prices.
8 A. I think that's a fair statement, in a general sense, yes.
9 Q. During the time that you were involved throughout the week
10 of September 15th up until closing and, indeed, beyond closing,
11 did you always act in what you thought was the best interest of
12 Lehman?
13 A. Yes, absolutely.
14 Q. As you sit here today, knowing everything that you know,
15 are you aware of anyone who was employed by Lehman back in
16 September of 2008 who did not act in the best interest of
17 Lehman?
18 A. No, I am not.
19 Q. At the time that the transaction was presented to the
20 Court, based on everything you know now, do you believe that
21 the transaction was presented to the Court in a fair and
22 balanced way?
23 A. Yes, I do.
24 Q. Based on everything that you know now, do you believe that
25 the transaction that Lehman did with Barclays was the best

212-267-6868 516-608-2400
243
1 transaction that Lehman had available to it at its time?
2 A. Yes.
3 Q. And do you believe that the Barclays transaction that was
4 done by Lehman in September of 2008 was better for Lehman, its
5 creditors and everyone else than any alternative that was
6 available?
7 A. Yes, I do.
8 MR. BOIES: Your Honor, is this a convenient time to
9 break?
10 THE COURT: Absolutely. I'm going to try to rule on
11 the remainder of the discovery dispute tomorrow morning. And
12 will collect my thoughts and provide a ruling at about 9:30
13 tomorrow which is when we will be resuming. And, of course,
14 the rule applies to Mr. McDade.
15 MR. GAFFEY: One quick housekeeping matter, Your
16 Honor.
17 THE COURT: Sure.
18 MR. GAFFEY: Mr. Boies and I are both puzzled as to
19 what you want us to do with the original exhibits. We've got
20 books all over the place. Do you want us to give them to your
21 clerk or hand them up at the end of the day. We don't want a
22 mess at the end of two weeks.
23 THE COURT: I think the National Archives would like
24 them.
25 MR. GAFFEY: That would be my office right now, Your

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244
1 Honor.
2 THE COURT: I don't have a particular idea because at
3 this point -- I'll give you an example. 694 which was just
4 used in questioning is an exhibit that was handed up by the
5 committee. You never gave me a copy. So I haven't seen that
6 document which everybody admitted could be in evidence. I was
7 looking at it on the screen. So while we are in the process of
8 talking about exhibits, maybe we can have a housekeeping
9 conversation, not on the public record, as to how to deal with
10 those documents. But for tonight, everything stays where it is
11 unless you want to box them up.
12 MR. GAFFEY: We'll figure something out and give you a
13 plan, Judge.
14 THE COURT: Okay. Give me a plan. And I'll see you
15 tomorrow morning.
16 (Proceedings concluded at 5:17 PM)
17
18
19
20
21
22
23
24
25

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1
2 I N D E X
3
4 T E S T I M O N Y
5 WITNESS EXAM BY PAGE LINE
6 Michael Ainslie Mr. Gafffey 75 19
7 Michael Ainslie Ms. Taggart 94 12
8 Michael Ainslie Mr. Boies 96 24
9 Michael Ainslie Mr. Gaffey 139 12
10 Bart McDade Mr. Gaffey 143 9
11 Bart McDade Ms. Taggart 218 5
12 Bart McDade Mr. Maguire 228 15
13 Bart McDade Mr. Boies 237 14
14
15 E X H I B I T S
16 PARTY NO DESCRIPTION ID. EVID.
17 BCI 473, Various drafts of minutes 104
18 765, of September 16th Lehman
19 766, board meeting
20 770,
21 771,
22 773,
23 789
24 Movants 694 E-mail from Alex Kirk dated 226
25 11/19/08

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1
2 C E R T I F I C A T I O N
3
4 I, Clara Rubin, certify that the foregoing transcript is a true
5 and accurate record of the proceedings.

Digitally signed by Clara Rubin
Clara Rubin
DN: cn=Clara Rubin, o, ou,
6 email=digital1@veritext.com,
c=US
7 Date: 2010.04.28 15:40:35 -04'00'
___________________________________
8 Clara Rubin
9 AAERT Certified Electronic Transcriber (CET**D-491)
10 Also transcribed by: Lisa Bar-Leib (CET**D-486)
11
12 Veritext
13 200 Old Country Road
14 Suite 580
15 Mineola, NY 11501
16
17 Date: April 28, 2010
18
19
20
21
22
23
24
25

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1

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

Case No. 08-13555(JMP)

Adv. Case No. 08-01420(JMP)(SIPA)

In the Matter of:

LEHMAN BROTHERS HOLDINGS INC., et al.,

SECURITIES INVESTOR PROTECTION CORPORATION,

LEHMAN BROTHERS INC.,

U.S. Bankruptcy Court

One Bowling Green

New York, New York

April 26, 2010

HON. JAMES M. PECK

U.S. BANKRUPTCY JUDGE

VERITEXT REPORTING COMPANY

3 Compelling Documents from LBHI, the Trustee, the Creditors'

4 Committee and their Financial Advisors Deloitte, FTI, Alvarez &

8 Corporation in Support of Trustee's Motion for Relief Pursuant

9 to the Sale Orders or, Alternatively, For Certain Limited

13 Lehman Brothers Holdings Inc., James W. Giddens as Trustee for

14 Lehman Brothers Inc., and the Official Committee of Unsecured

15 Creditors of Lehman Brothers Holdings Inc. to Modify the

20 Trustee for Relief Pursuant to Sale Orders or, Alternatively,

21 for Certain Limited Relief Under Rule 60(b) and Reservation of

22 Rights [Case No. 08-01420, Docket No. 1917]

VERITEXT REPORTING COMPANY

3 Official Committee of Unsecured Creditors of Lehman Brothers

5 01420, Docket No. 1914]

8 Company in Support of the Motions for (I) an Order Modifying

17 Committee of Unsecured Creditors of Lehman Brothers Holdings

18 Inc. [Case No. 08-13555, Docket No. 5426]

VERITEXT REPORTING COMPANY

3 Bank Of Tokyo-Mitsubishi UFJ, Ltd. And Lloyds TSB Bank, plc In

4 Connection With (I) Motions Of Lehman Brothers Holdings, Inc.,

5 The Official Committee Of Unsecured Creditors, And James W.

6 Giddens, As Trustee For Lehman Brothers, Inc., For Certain

8 Motion Of Barclays Capital Inc. To Enforce The Sale Orders And

9 Secure Delivery Of Undelivered Assets [Case No. 08-13555,

10 Docket No. 7165; Case No. 08-1420, Docket No. 2679]

13 Regarding Rule 60 Proceedings [Adv. No. 08-1789, Docket No. 33]

16 Motion, (ii) the Committee's Motion, and (iii) LBHI's Motion

18 Limited Relief Under Rule 60(b); and (B) Objection to Barclays

VERITEXT REPORTING COMPANY

2 LibertyView's: (A) Joinder to (I) the Trustees' Motion, (II)

4 the Sale Orders or, Alternatively, for Certain Limited Relief

5 Under Rule 60(b); and (B) Objection to Barclays Capital Inc.'s

7 7419; Case No. 08-01420, Docket No. 2778]

14 Sale Orders or, Alternatively, for Certain Limited Relief Under

15 Rule 60(b) [Case No. 08-01420, Docket No. 1682]

18 of Lehman Brothers Holdings Inc., Authorizing and Approving (A)

19 Sale of Purchased Assets Free and Clear of Liens and Other

20 Interests and (B) Assumption and Assignment of Executory

21 Contracts and Unexpired Leases, Dated September 20, 2008 (and

22 Related SIPA Sale Order) and Joinder in Debtors and SIPA

23 Trustees' Motions for an Order Under Rule 60(b) to Modify Sale

25 Docket No. 1686]

VERITEXT REPORTING COMPANY

3 Order and Secure Delivery of All Undelivered Assets [Case No.

13 Relief Pursuant to 11 U.S.C. Section 105(a) and 28 U.S.C.

14 Sections 2201, 2202 and for an Accounting [Adv. No. 09-01733,

VERITEXT REPORTING COMPANY

4 Special Counsel for the Debtors