CME loses bid to shield Goldman, others in Lehman case

By Emily Chasan and Ann Saphir

NEW YORK/CHICAGO, April 14 (BestGrowthStock) – CME Group Inc lost a
bid to withhold the identity of firms that took part in an
emergency auction of the futures and options positions of a
floundering Lehman Brothers Holdings Inc (LEHMQ.PK: ) in 2008.

CME (CME.O: ) asked Barclays Bank (BARC.L: ), Goldman Sachs
(GS.N: ), Morgan Stanley (MS.N: ) (Read more about the money market today. ), JPMorgan Chase (JPM.N: ), and
Chicago-based trading firms Citadel LP and DRW Trading to take
part in the auction, according to unredacted court documents.
Of those firms, all but Morgan Stanley took part.

The ruling, on Wednesday, sparked worries in the futures
industry about how to resolve future crises. CME, joined by
several industry groups, had argued that revealing the names of
the participants could hurt its ability to hold future
auctions, because traders don’t want their competitors to know
what assets they hold or how much they paid for them.

“I’m not sure what divulging the identity of the bidders
adds,” said Dan Roth, president of the National Futures
Association, after Judge James Peck, who is overseeing the
Lehman bankruptcy in Manhattan, rejected a request from CME
Group to keep certain documents about the auction secret. “It
may have a chilling effect on people’s willingness to
participate in these auctions in the future.”

CME conducted the September 2008 auction of Lehman’s $2
billion portfolio after it became clear the firm would seek
bankruptcy protection.

Bidders were given a look at the assets and a deadline by
which to place their bids under seal.

If traders knew those bids would be revealed, they might
have submitted lower bids, or even declined to participate at
all, industry observers said. That could complicate matters if
another large firm fails and its assets need to be liquidated
so as to insulate other members of a clearinghouse from the
failure.

“This was the first time the CME had to conduct an auction
of this kind,” CME Associate General Counsel Lisa Dunsky told
the court before the ruling. “We hope that it doesn’t happen
again, but if it does, whether it’s CME or any other clearing
house, it is critical to have multiple qualified bidders who
are willing to participate in the auction.”

Dunsky said that more than one of the bidders whose names
were going to be disclosed had told CME directly that they
would not have participated in the auction if they had known
their trades would be made public.

“There is potential significant harm not only to CME Group
but to the futures markets in general,” Dunsky said.

But Judge Peck on Wednesday disagreed and ordered the
immediate publication of the full examiners’ report. He said
the “public’s right to know” outweighed confidentiality
concerns and that no one knows whether a similar auction would
actually occur in the future.

Attorneys for the examiner, Anton Valukas, who is chairman
of Chicago-based law firm Jenner & Block, said that it is 18
months after the fact, and that potential litigation could be
brought over some of these trades and people would need to know
whom to sue.

Each winning bidder that took over a piece of the Lehman
portfolio did so at a gain, the documents showed. The examiner
concluded that although an argument could be made that the
transfers at issue were fraudulent in part because Lehman may
have received less than fair payments for its assets, “the
evidence does not support the existence of colorable claims.”

A representative for Lehman’s trustee in charge of
liquidating customer assets said in court on Wednesday that the
trustee may sue to recover some of these transactions.

Barclays was the winning bidder for Lehman’s energy
positions, the unredacted documents show. The firm received
collateral deposits valued at $707.4 million, in return for
taking over the portfolio, in which the options positions had a
negative value of $372.4 million.

DRW Trading delivered the winning bid for Lehman’s foreign
exchange, interest-rate derivatives and agricultural
derivatives portfolios.

Goldman won the bidding for the equity derivatives
portfolio.

DRW appeared unfazed by the disclosures.

“DRW is proud that in its role of liquidity provider we
were able to assist the CME when it determined that an
emergency auction was necessary to assure the stability and
continuity of the markets,” DRW CEO Don Wilson said.

Representatives of Citadel, Goldman and Barclays declined
to comment. Spokesmen for Morgan Stanley and JPMorgan did not
immediately respond to requests for comment.

An attorney for the examiner said in court on Wednesday
that the CME’s request was “the last logistical obstacle to
having our report fully open.”

“We are disappointed with the decision, but we will comply
with the court’s ruling,” a CME spokesman said.

The case is In re: Lehman Brothers Holdings Inc, U.S.
Bankruptcy Court, Southern District of New York, No. 08-13555.

Penny Stocks

(Reporting by Ann Saphir and Emily Chasan; Editing by Steve
Orlofsky)

CME loses bid to shield Goldman, others in Lehman case