Hong Kong Court Orders Records Disclosure in SFC Lehman Brothers Case

The Hong Kong High Court has ruled that Lehman Brothers Asia Ltd must disclose records to the Securities and Futures Commission in connection with its investigation of the offer and marketing of minibonds. Justice Barma also ruled that Lehman Brothers, which is currently in liquidation, must pay the SFC’s costs in bringing an application before the High Court. While the SFC respects valid claims of legal professional privilege, noted Enforcement Director Mark Steward, the Commission will not hesitate to challenge claims that do not have a valid foundation.
The SFC applied to the High Court for an order directing Lehman Brothers to produce all documents relating to the assessment of minibonds by an internal committee called the New Product Review Committee. The SFC believes that the New Product Review Committee oversaw or approved products like the minibonds and that these documents are relevant to its investigation. In response, the liquidators for Lehman Brothers objected to the production of 17 documents in their entirety on the grounds of legal professional privilege because a member of the New Product Review Committee was an in-house lawyer at Lehman Brothers.

The SFC disputed that the entire contents of the 17 documents could be the subject of a valid claim of legal professional privilege and brought the application to vindicate the request for disclosure and to compel the production of the documents. After commencement of proceedings, the liquidators provided excerpts of the documents to the SFC. However, the Commission was not satisfied that the disclosure was sufficient and the case proceeded in the High Court, which ruled that that withheld sections of seven documents were not subject to valid claims of privilege and further material should be produced to the SFC.

Justice Barma has noted that the winding up of the eight Hong Kong companies in the Lehman Brothers group of companies are of a scale and complexity, so far as Hong Kong is concerned, that has rarely been seen. They are part of insolvency proceedings around the world, in particular in the United States, the United Kingdom and Japan, in respect of the failure of the Lehman Brothers group, which was until then the fourth-largest investment bank in the United States.

The insolvencies present operational and technical challenges which surpass any that have previously been experienced in Hong Kong. At the time that they suspended operations, the Lehman firms had over 2,191 unsettled trades of listed securities on the Hong Kong Stock Exchange, held HK$8.3 billion worth of Hong Kong listed securities, some HK$867 million worth of overseas listed securities, some 11,000 unsettled futures positions, stock lending and borrowing arrangements involving over 15,000 transactions, and had in excess of 2,000 identified creditors.

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