On June 29, 2015, the United States Court of Appeals for the Second Circuit affirmed the decision of the United States Bankruptcy Court for the Southern District of New York, which held that claims asserted by counterparties in relation to bilateral repurchase agreements do not qualify for treatment as customer claims under the Securities Investor Protection Act of 1970 (“SIPA”). The Court of Appeals found that the appellant was not a customer for purposes of SIPA, because a customer must have entrusted assets to a failed broker-dealer, and the repurchase agreements at issue did not involve the entrustment of assets to Lehman Brothers, Inc. This is the second circuit-level decision to hold that repurchase agreement transactions fail to give rise to customer claims under SIPA.

Background -

The decision arose when numerous parties objected to the Lehman trustee’s determination that certain of their claims relating to their inability to repurchase securities from Lehman should be categorized as general creditor claims, as opposed to customer claims. This distinction is important because under SIPA, only “customers” are entitled to receive a pro rata share of “customer property” (which generally means the failed broker-dealer’s pool of non-proprietary cash and securities), and to receive a certain amount of insurance protection provided by the Securities Investor Protection Corporation.

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