Linklaters ‘could face litigation’ over explosive Lehman report

All bets are off as Lehman administrators PwC examine implications of Valukas findings

Linklaters could find itself the subject of litigation from creditors of Lehman Brothers after it emerged that the bank had misused an opinion from the firm to tidy up its balance sheet before its collapse in September 2008.

Last week a report into the bank’s demise found that Lehman had used an advice letter written by Linklaters, which was intended specifically for use with reference to the bank’s UK and EU subsidiaries, to keep up to $50bn (£33.24bn) of debt off its US balance sheet.

While there was no suggestion in the report, written by Jenner & Block chairman Anton Valukas, that Linklaters had acted illegally, the bank’s actions have left the firm open to being sued by aggressive US creditors for aiding and abetting ­securities fraud.

“They [Linklaters] have exposed themselves to ­litigation, as the administrators to Lehman or a ­creditor might think they have a claim,” said a source at risk management ­consultancy Kroll.
PricewaterhouseCoopers (PwC) partners Tony Lomas and Dan Schwarzmann are Lehman’s joint administrators in the UK and have been advised by Linklaters since being appointed in 2008.

While PwC declined to comment specifically on how the report will affect its relationship with the magic circle firm, the accountancy firm did confirm that it was weighing up its options.

“The administrators are currently undertaking a detailed review of the 2,200-page report to ascertain what, if any, actions need to be taken as a consequence of the findings,” a PwC spokesman said. “At this stage it’s far too early to form a view on what they might be.”

That said, the general counsel at a leading City firm agreed with the Kroll source that Linklaters is likely to be sued.

“They’ll get sued – quite wrongly – but they will get sued,” the partner insisted.

If that happens it could have alarming consequences for Linklaters, according to a leading ­professional negligence silk. “The trouble is, the sums involved are huge because this [was a factor] in ­precipitating the collapse of Lehman,” he said. “It would be over their professional indemnity limit, so partners would want to settle.”

Linklaters defended itself in a statement, which said: “The US examiner’s report into the failure of Lehman Brothers includes references to English Law opinions which Linklaters gave in relation to a number of Lehman transactions. We’ve reviewed the opinions and are not aware of any facts or circumstances which would justify any criticism.”