Corporate Law
Wachtell to Clients: Lessons Learned from Lehman Brothers Bankruptcy
Posted Nov 12, 2008, 11:50 am CST
By Martha Neil
A memo to clients yesterday from Wachtell, Lipton, Rosen & Katz discusses lessons that some major investors learned the hard way from the Lehman Brothers bankruptcy.
For example, hedge funds and other counterparties who put up collateral, as a condition of making trades through Lehman's prime brokerage unit, discovered that their money wasn't protected in the bankruptcy. That's because their money was commingled with Lehman funds rather than being kept in a segregated account, reports the New York Times' DealBook blog.
Another pitfall for the unwary—a group that allegedly included Walt Disney Co., according to the blog—was foreign exchange trading. Because such payments in such trades “are never truly simultaneous,” the counterparty who pays first bears the risk of losing the entire amount paid, the Wachtell memo explains.