2010-04-29 Lehman Hearing Transcript

1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
Case Nos. 08-13555(JMP); 08-01420(JMP)(SIPA)
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In the Matter of:
LEHMAN BROTHERS HOLDINGS INC., et al.
Debtors.
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In the Matter of:
LEHMAN BROTHERS INC.
Debtor.
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United States Bankruptcy Court
One Bowling Green
New York, New York
April 29, 2010
9:37 AM
B E F O R E:
HON. JAMES M. PECK
U.S. BANKRUPTCY JUDGE
VERITEXT REPORTING COMPANY

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1
2 HEARING re Statement of the Securities Investor Protection
3 Corporation in Support of Trustee's Motion for Relief Pursuant
4 to the Sale Orders or, Alternatively, For Certain Limited
5 Relief Under Rule 60(b)
6
7 HEARING re Objection of HWA 555 Owners, LLC to the Motions of
8 Lehman Brothers Holdings Inc., James W. Giddens as Trustee for
9 Lehman Brothers Inc., and the Official Committee of Unsecured
10 Creditors of Lehman Brothers Holdings Inc. to Modify the
11 September 20, 2008 Sale Order and for Other Relief
12
13 HEARING re Statement of the Bank of New York Mellon Trust
14 Company in Support of the Motions for (I) an Order Modifying
15 the September 20, 2008 Sale Order and Granting Other Relief and
16 (II) to Unseal Motions for Relief from September 20, 2008 Sale
17 Order (and Related SIPA Sale Order)
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25

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1
2 HEARING re Joint Statement And Reservation of Rights of the
3 Bank Of Tokyo-Mitsubishi UFJ, Ltd. and Lloyds TSB Bank, plc in
4 Connection with (I) Motions of Lehman Brothers Holdings, Inc.,
5 The Official Committee Of Unsecured Creditors, And James W.
6 Giddens, as Trustee For Lehman Brothers, Inc., for Certain
7 Relief Pursuant to the September 20, 2008 Sale Orders; and (II)
8 Motion of Barclays Capital Inc. to Enforce the Sale Orders and
9 Secure Delivery Of Undelivered Assets
10
11 HEARING re Australia & New Zealand Banking Group LTD's Letter
12 Regarding Rule 60 Proceedings
13
14 HEARING re LibertyView's: (A) Joinder to (i) the SIPA Trustee's
15 Motion, (ii) the Committee's Motion; and (iii) LBHI's Motion
16 for Relief from the Sale Orders or, Alternatively, for Certain
17 Limited Relief Under Rule 60(b); and (B) Objection to Barclays
18 Capital Inc.'s Motion to Enforce the Sale Order
19
20 HEARING re Joinder of Newport Global Opportunities to
21 LibertyView's: (A) Joinder to (i) the Trustees' Motion, (ii)
22 the Committee's Motion; and (iii) LBHI's Motion for Relief from
23 the Sale Orders or, Alternatively, for Certain Limited Relief
24 Under Rule 60(b); and (B) Objection to Barclays Capital Inc.'s
25 Motion to Enforce the Sale Order

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1
2 HEARING re Motion of Debtor to Modify the September 20, 2008
3 Sale Order and Granting Other Relief
4
5 HEARING re Motion of the Trustee for Relief Pursuant to the
6 Sale Orders or, Alternatively, for Certain Limited Relief Under
7 Rule 60(b)
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9 HEARING re Motion of Official Committee of Unsecured Creditors
10 of Lehman Brothers Holdings Inc., Authorizing and Approving (a)
11 Sale of Purchased Assets Free and Clear of Liens and Other
12 Interests; and (b) Assumption and Assignment of Executory
13 Contracts and Unexpired Leases, Dated September 20, 2008 (and
14 Related SIPA Sale Order) and Joinder in Debtors and SIPA
15 Trustees' Motions for an Order Under Rule 60(b) to Modify Sale
16 Order
17
18 HEARING re Motion of Barclays Capital Inc. to Enforce the Sale
19 Order and Secure Delivery of All Undelivered Assets
20
21 HEARING re Trustee's Adversary Complaint
22
23 HEARING re LBHI's Adversary Complaint
24
25 Transcribed by: Lisa Bar-Leib

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1
2 A P P E A R A N C E S :
3 JONES DAY
4 Special Counsel for the Debtors
5 222 East 41st Street
6 New York, NY 10017
7
8 BY: ROBERT W. GAFFEY, ESQ.
9 WILLIAM J. HINE, ESQ.
10
11 QUINN EMMANUEL URQUHART OLIVER & HEDGES, LLP
12 Special Counsel to the Official Committee of Unsecured
13 Creditors
14 51 Madison Avenue
15 22nd Floor
17
18 BY: SUSHEEL KIRPALANI, ESQ.
19 JAMES C. TECCE, ESQ.
20 RICHARD I. WERDER, JR., ESQ.
21
22
23
24
25

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2 QUINN EMMANUEL URQUHART OLIVER & HEDGES, LLP
3 Special Counsel to the Official Committee of Unsecured
4 Creditors
5 865 S. Figueroa St., 10th Floor
6 Los Angeles, CA 90017
7
8 BY: ERICA P. TAGGART, ESQ.
9
10 HUGHES HUBBARD & REED LLP
11 Attorneys for the James W. Giddens, SIPA Trustee
12 One Battery Park Plaza
14
15 BY: WILLIAM R. MAGUIRE, ESQ.
16
17 SECURITIES INVESTOR PROTECTION CORPORATION
18 805 15th Street, N.W.
19 Suite 800
20 Washington, DC 20005
21
22 BY: KENNETH J. CAPUTO, ESQ.
23
24
25

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2 BOIES, SCHILLER & FLEXNER LLP
3 Attorneys for Barclays Capital, Inc.
4 333 Main Street
5 Armonk, NY 10504
6
7 BY: DAVID BOIES, ESQ.
8
11 5301 Wisconsin Avenue, N.W.
12 Washington, DC 20015
13
14 BY: HAMISH P.M. HUME, ESQ.
15 JONATHAN D. SCHILLER, ESQ.
16
19 10 North Pearl Street
20 4th Floor
21 Albany, NY 12207
22
23 BY: TRICIA J. BLOOMER, ESQ.
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25

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1
4 401 East Las Olas Boulevard
5 Suite 1200
6 Fort Lauderdale, FL 33301
7
8 BY: TODD THOMAS, ESQ.
9
10 GOODWIN PROCTER LLP
11 Attorneys for Evergreen Solar Inc.
12 The New York Times Building
13 620 Eighth Avenue
15
16 BY: K. BRENT TOMER, ESQ.
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18 CHAPMAN & CUTLER
19 Attorneys for Creditor, US Bank
20 111 West Monroe Street
21 Chicago, IL 60603
22
23 BY: JAMES HEISER, ESQ.
24 FRANKLIN H. TOP III, ESQ.
25 (TELEPHONICALLY)

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2 DEWEY & LEBOEUF LLP
3 Attorneys for CAPCO, Inc.
4 1301 Avenue of the Americas
6
7 BY: ELIZABETH P. SMITH, ESQ.
8 (TELEPHONICALLY)
9
10 STUTMAN TREISTER & GLATT
11 Attorneys for Interested Party, Elliott Company
12 1901 Avenue of the Stars, 12th Floor
13 Los Angeles, CA 90067
14
15 BY: WHITMAN L. HOLT, ESQ.
16 REBECCA S. REVICH, ESQ.
17 (TELEPHONICALLY)
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19
20
21
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25

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1 P R O C E E D I N G S
2 THE COURT: Be seated, please. Good morning. Mr.
3 Gaffey?
4 MR. GAFFEY: Thank you, Your Honor. Your Honor, the
5 movants call Ian Lowitt. And I'm pleased to report everybody
6 has their books except for Your Honor. So if I could approach?
7 THE COURT: I'd be delighted to take another book.
8 Thank you. Mr. Lowitt, good morning. Please raise your right
9 hand. Actually, if you could stand up and do that, I'd
10 appreciate it. Just be careful.
11 (Witness duly sworn)
12 THE COURT: Be seated, please.
13 DIRECT EXAMINATION
14 BY MR. GAFFEY:
15 Q. Good morning, Mr. Lowitt.
16 A. Good morning.
17 Q. I'm Robert Gaffey, special counsel to the estate. We've
18 met before, have we not, sir?
19 A. Yes. We met at my deposition.
20 Q. Okay. And we've not met since then?
21 A. No.
22 Q. Okay. Mr. Lowitt, I'm going to ask you -- you have sort
23 of a soft voice. If you could pull the microphone closer, that
24 would be very helpful.
25 A. Sure.

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1 Q. Thank you. Could you describe for the Court your
2 employment by Lehman Brothers? Just in summary form, sir, when
3 did you join Lehman? How long were you there?
4 A. Sure. I joined Lehman in 1994 as head of strategy and
5 corporate development. In 2000, I became the global treasurer
6 and head of tax of Lehman Brothers. In 2005, I went to London
7 as the chief administrative officer for Europe and, in that
8 capacity, had responsibility for systems operations and other
9 infrastructure areas. In 2007, I returned to New York to be
10 the co-global CAO for Lehman Brothers. And again, my
11 responsibilities there included systems operations, expense
12 management as well as oversight for finance. And then I think
13 it was in June of 2008, I retained by CAO responsibilities but
14 was asked by Dick to add to those the CFO responsibilities
15 which I retained for ninety days or so.
16 Q. And for the clarity of the record, sir, CFO is chief
17 financial officer?
18 A. That is correct.
19 Q. Now, as chief financial officer, to whom did you report?
20 A. I reported to Bart McDade who was the president of Lehman
21 Brothers.
22 Q. And did you have people who reported directly to you?
23 A. I did.
24 Q. And did they include Martin Kelly?
25 A. Martin Kelly reported to me as the financial controller.

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1 Q. And did Gerard Reilly report to you?
2 A. He did. Gerry was the head of product control for capital
3 markets.
4 Q. And did Pablo (sic) Tonucci report to you?
5 A. Paolo was the global treasurer and he did report to me.
6 Q. And there were others that included John DeRosa, Bridget
7 O'Connor, Bob Lieberberg?
8 A. That's correct. Bridget O'Connor was the head of IT. So
9 as the co-CAO, I had operations and IT reporting to me. So
10 Bridget was the head of IT and she reported to me in my
11 capacity as the co-CAO which I retained --
12 Q. All right.
13 A. -- as well as the CFO title.
14 Q. I take it Kelly, Reilly and Tonucci reported up to you in
15 your capacity of chief financial officer.
17 Q. Okay. And did Alastair Blackwell report to you?
18 A. Alastair reported to me. Alastair was the head of
19 operations. And so again, linked with CAO responsibilities,
20 Alastair had a reporting line in to me.
21 Q. Okay. Now, in your capacity as chief financial officer,
22 you were responsible for -- well, by whom are you employed now,
23 sir?
24 A. By Barclays.
25 Q. And what's your position there?

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1 A. I'm the chief operating officer for Barclays Wealth
2 Americas.
3 Q. And when did you join Barclays.
4 A. I joined Barclays on the Monday -- I guess it was
5 September 22nd when the transaction with Lehman Brothers and
6 Barclays closed.
7 Q. So that would be September 22nd, 2008, correct?
8 A. That's correct.
9 Q. Okay. And have you worked at Barclays continuously since
10 that time?
11 A. I have.
12 Q. Now, when you were chief financial officer for Lehman, you
13 were responsible for running the finance department, correct?
14 A. Yes. I had responsibility for finance.
15 Q. Well, you needed to run it, right? You ran the finance
16 department?
17 A. Well, there were -- yeah. I was responsible for the
18 organization and to ensure that the finance function operated
19 effectively.
20 Q. And product control was within your responsibilities,
21 correct?
22 A. Product control was an element of finance and part of my
23 responsibilities.
24 Q. And financial control was within your area of
25 responsibilities, yes?

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1 A. Financial control reported in to the CFO.
2 Q. And tax and treasury were also in your -- were under your
3 responsibility, correct?
4 A. That was all part of finance, yes.
5 Q. Anything else that you were responsible for as chief
6 financial officer?
7 A. Again, I thought of my CFO responsibilities as ensuring
8 that the finance function functioned effectively.
9 Q. Well, in your capacity as chief financial officer for
10 Lehman, you were the individual in charge of maintaining the
11 accuracy of Lehman's books and records, correct?
12 A. I was responsible for making sure that the finance
13 organization was effective in maintaining the books and
14 records.
15 Q. And -- sorry. Were you finished?
16 A. Yes.
17 Q. Okay. And ultimately, that reported up to you, yes?
18 A. The people in finance reported up to me.
19 Q. So you were the man in charge of that operation, correct?
20 A. I was the person that the folks in product control
21 reported in to.
22 Q. Is there a difference between you were the person the
23 folks were reporting in to and you were in charge of that?
24 A. I'm just trying to describe it the way that I think about
25 it. I was the head of finance as the CFO.

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1 Q. Well, when there were filings -- when there were public
2 filings regarding Lehman's financials, you were the man who
3 signed them, yes?
4 A. They were attestations and I did sign the queue for the
5 second quarter.
6 Q. And did you have other duties as chief financial officer
7 of Lehman Brothers?
8 A. I think that the way I described was broad and included
9 the duties that I understood.
10 Q. Now, sir, we can agree that it was a difficult time for
11 Lehman through the summer of 2008, correct?
12 A. We can agree on that.
13 Q. And you had concerns through that summer for the future of
14 the company, did you not?
15 A. I don't think I would describe it that way. It was a
16 difficult market environment but I don't recall having fears
17 for the future of the company.
18 Q. Well, there comes a time in September of 2008, September
19 15th, sir, as you probably know, where the bankruptcy is filed,
20 yes?
21 A. Yes, I do.
22 Q. Okay. And once the bankruptcy filing occurred, there was
23 a lot of uncertainty at Lehman, correct?
24 A. Yes.
25 Q. And what you would describe as a chaotic situation in

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1 which employees were distraught about their futures, correct?
2 A. I think people had concerns about their futures but one of
3 the things I think I and others take great pride is just the
4 way in which the employees of Lehman Brothers stuck to their
5 tasks through that week and continued to ensure that Lehman
6 could operate and that the orderly wind-down could proceed.
7 Q. Would you agree or not agree with my choice of the word
8 "distraught" to describe the employees at that time?
9 A. I think some people probably were distraught. But my
10 general sense of how people were conducting themselves was that
11 they were surprisingly calm and sticking to their purpose and
12 professional.
13 Q. Okay. You submitted a declaration as part of Barclays'
14 opposition papers in the motion that brought us here today.
15 Did you not, sir?
16 A. I did.
17 Q. And have you reviewed that declaration to prepare for your
18 testimony today?
19 A. I have looked through that.
20 MR. GAFFEY: Your Honor, may I approach?
21 THE COURT: Yes.
22 Q. Now, in the declaration -- you recognize -- I've just
23 handed you a document entitled "Declaration of Ian Lowitt" and
24 it's been marked as BCI Exhibit number 365. You have that
25 before you?

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1 A. I do.
2 Q. And do you recognize that to be the declaration that you
3 submitted as part of Barclays' opposition papers here?
4 A. I do.
5 Q. And would you turn to paragraph 7 of your declaration?
6 That begins at page 2.
7 A. I see it.
8 Q. And you say the following: "Following LBHI's filing for
9 bankruptcy, I was involved with a number of different
10 activities on behalf of LBI (sic), including helping to ensure
11 that LBHI was able to continue to operate until the sale
12 transaction was consummated. Thus, my job responsibilities
13 included focusing on, among other things, Lehman's liquidity
14 challenges as well as the operational and personnel issues
15 created by Lehman's filing.
16 The bankruptcy filing and the ensuing uncertainty at LBI
17 created a chaotic situation in which employees were distraught
18 about their futures. And it was difficult to get employees to
19 focus on the firm."
20 You see that?
21 A. I do.
22 Q. That was a true statement when you signed the declaration
23 to be submitted in connection with the motion, was it not, sir?
24 A. It was.
25 Q. All right. So would you agree with me then that in the

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1 chaotic situation that ensured after the bankruptcy, employees
2 were distraught about their futures?
3 A. There were employees who were distraught about their
4 futures.
5 Q. And would you agree, too, sir, that it was difficult to
6 get employees to focus on the firm?
7 A. It was something that we needed to do but it required
8 effort in --
9 Q. Difficult.
10 A. -- certain circumstances.
11 Q. It's your word, sir. It was difficult.
12 A. I agree. I agree.
13 Q. Okay. Now, you yourself were somewhat distraught after
14 the filing of the bankruptcy, were you not, sir?
15 A. The bankruptcy was obviously a traumatic event for the
16 firm and for many of us. But again, my sense of the time was
17 one where we were very focused on doing what we needed to do to
18 continue the operation of Lehman Brothers.
19 Q. And in the few days leading up to --
20 MR. GAFFEY: Actually, Steve, could you put the
21 calendar up, please?
22 Q. In the few days leading up to the bankruptcy, in the few
23 days before that weekend, sir, there had been negotiations
24 taking place between Lehman, on the one hand, and Bank of
25 America and Barclays, is that right?

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1 A. We did engage with Bank of America in diligence towards
2 the end of that week. And then there was some diligence that
3 was engaged in with Barclays on the Friday.
4 Q. And you had been working pretty hard around that set of
5 negotiations, is that right?
6 A. I wasn't involved in the Barclays due diligence but I was
7 involved in the due diligence associated with Bank of America.
8 Q. Okay. And the Bank of America deal did not come to
9 fruition, correct?
11 Q. All right. That deal died, more or less, on Saturday, the
12 14th of September, correct?
13 A. I actually don't know when that deal was no longer
14 possible. But certainly, there were no ongoing communications
15 with Bank of America.
16 Q. It was before the bankruptcy filing, yes?
17 A. Yes.
18 Q. Okay. For your ease, sir --
19 A. Okay.
20 Q. -- I think you can see on the screen what's up there.
21 A. Okay.
22 Q. So whatever's easier for you.
23 A. Thank you very much.
24 Q. Okay. And you were -- and then comes the weekend and the
25 bankruptcy filing, yes?

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1 A. I think the bankruptcy filing was early the Monday
2 morning, but we worked on the bankruptcy filing of the 28th.
3 Q. Okay. And there was a board meeting on the 15th of
4 September concerning the bankruptcy filing, correct?
5 A. On the morning of the 15th? I mean, I'm aware that there
6 was one but I don't recall that meeting.
7 Q. Do you recall whether or not you attended it?
8 A. I just don't recall that meeting.
9 Q. Okay. There's a lot going on.
10 A. There's a lot going on.
11 Q. Okay. And that would be one of the reasons that you don't
12 remember whether you attended the meeting on the 15th when the
13 bankruptcy petition was considered.
14 A. Oh, I'm sorry. The bankruptcy petition on the 15th?
15 Q. Yeah. I'm asking you if you attended a board meeting on
16 Sunday the 15th?
17 A. I'm sorry. I'm getting con -- isn't Monday the 15th?
18 Q. I beg your pardon. You're right. I put the calendar up
19 and I have it wrong.
20 A. Right.
21 Q. Did you attend the board meeting on the 14th of September?
22 A. I did.
23 Q. You did, okay. And you recall being at that board
24 meeting?
25 A. I do.

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1 Q. Did you speak at that board meeting?
2 A. I do recall speaking at a board meeting on the 14th.
3 Q. Okay. Do you recall more or less what it was you said at
4 that board meeting on the 14th?
5 A. I would've talked about the liquidity position of the firm
6 because that was the area that I was typically asked to have a
7 position -- or have a view on.
8 Q. And just in a word or two, sir, how was the liquidity
9 position of the firm on that day?
10 A. Well, the liquidity was extremely stressed.
11 Q. Okay. So by the 14th -- by Sunday the 14th, you'd been
12 working on the Bank of America matter, you've attended a board
13 meeting about filing for bankruptcy of the firm you've worked
14 with from 1994. Let me return to the question I asked before.
15 You were a bit distraught at that time, weren't you, sir, like
16 the other people you described in your declaration, is that
17 correct?
18 A. Again, I can't recall exactly how I would've -- how I felt
19 at that time. Certainly, it was a stressful and difficult time
20 for all of us at Lehman.
21 Q. And you had some concerns for your own professional
22 future, isn't that right?
23 A. I don't recall that being what I was thinking about at
24 that time. Again, our focus was on what was happening to the
25 whole firm and the environment that we were in.

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1 Q. Okay. I want to cut ahead a little bit and we'll be
2 talking about the week from the 15th of September through the
3 22nd, obviously, sir. But I want to cut ahead for just a
4 moment to late in the week around the Friday the 19th. Now, on
5 that Friday morning, sir, and we'll talk about this in a little
6 more detail later.
7 A. Sure.
8 Q. But on that Friday morning, you were involved in a project
9 where the task was to find additional value to give to
10 Barclays, is that right?
11 A. Yes, that is right.
12 Q. Okay. And by the time you were involved in that project
13 to give additional value to Barclays, you were already -- you
14 had already signed an employment agreement with Barclays, is
15 that right?
16 A. I had signed an employment agreement on the -- I think it
17 was on the 18th.
18 Q. You had signed that on the 18th, the day before.
20 Q. Okay. And do you recall being concerned by the 19th that
21 you would be, at some degree, of professional risk if the
22 Barclays transaction didn't close?
23 A. Before signing the employment contract, I spoke with, you
24 know, Anthony Collerton, who is the head of HR at Lehman, as
25 well as I'd had discussions with Steve Berkenfeld. And they

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1 indicated that it was -- it didn't represent a problem for me
2 to sign. And it was one where I understood that for the trade
3 to proceed, I needed to be a signator of that and I didn't want
4 to be an obstacle. That's really what was behind that. I'm
5 sorry. I may not be getting to your question --
6 Q. I think we may be missing each other here --
7 A. Right.
8 Q. -- Mr. Lowitt. I will ask you some more questions about
9 the circumstances under which you came in -- you signed the
10 contract. But my question at the moment goes to -- the state -
11 - your state of mind on the 19th. On the 19th of September,
12 all week there's been a lot of activity around the sale
13 transaction, correct?
14 A. Most of the activity that I was involved with was around
15 making sure that we were able to continue to fund the firm and
16 to continue to operate and maintain orderly wind-down of the
17 firm.
18 Q. Okay. And by the 19th, you know that there's going to be
19 a sale hearing that afternoon, correct, in this court?
20 A. Umm --
21 Q. By the Friday?
22 A. I don't recall it but I do know that there was going to be
23 a presentation to the Court.
24 Q. And you recall being involved in some work on Friday
25 morning where there's a scramble to find additional value to

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1 give to Barclays, correct?
2 A. Right. I recall Bart McDade asking me to work with others
3 to identify additional sources of value.
4 Q. And you understand when you're working on that search for
5 additional value that it's possible the deal won't close if
6 enough value is not found. Is that correct?
7 A. Well, I understood that it was an important element -- I
8 understood it was important because Bart was asking me to
9 engage with it. I don't know if I would have linked it to
10 whether a deal was possible or not. I understood that it was
11 important.
12 Q. And I'll go back to the question I asked you a few moments
13 ago. By that time in the week, you have a fair degree of
14 concern. You feel yourself that you're at some degree of
15 professional risk if the deal does not close, correct?
16 A. Again, I really feel that -- what I was concerned about at
17 that time is what would have happened to the whole firm and the
18 financial environment if the deal hadn't closed. And I can't
19 say with complete certainty that I had no concerns about my own
20 circumstance. But, really, my recollection is that it was
21 really about what would happen to Lehman Brothers, what would
22 happen to the financial marketplace, what would be the
23 consequences more broadly if a deal didn't close.
24 Q. Okay. Do you recall writing an e-mail to Paolo Tonucci on
25 the 20th of September concerning whether or not the asset

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1 gathering project was going to be successful getting it over
2 the goal line?
3 A. I don't recall that but I have certainly see the e-mails
4 that you're referencing.
5 Q. Okay. And the e-mail that I'm referencing, sir, would be
6 behind tab M-56 of the book that's in front of you. Could you
7 turn to that, please?
8 (Pause)
9 Q. You had a chance to look that e-mail through, Mr. Lowitt?
10 A. I have.
11 Q. All right. And that's the e-mail that you just described?
12 A. The e-mail stream.
13 MR. GAFFEY: Your Honor, I offer M-56.
14 MR. HUME: Your Honor, we object as to hearsay.
15 THE COURT: You object to hearsay with respect to an
16 e-mail that's written by Mr. Lowitt?
17 MR. HUME: Well, Mr. Lowitt's here to testify and he
18 can be asked about it. But the underlying e-mail is from Mr.
19 Tonucci.
20 THE COURT: Is Mr. Tonucci around?
21 MR. GAFFEY: Actually, the first e-mail is from Mr.
22 Lowitt, Your Honor, at the bottom. And the next e-mail up is
23 from Mr. Lowitt. It's only the top one that's to Mr. Lowitt.
24 And I think it qualifies as a business record. And I think it
25 qualifies as a recollection recorded in light of Mr. Lowitt's

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1 lack of recollection about the specifics of the e-mail. And I
2 think it comes under both exceptions to the hearsay rule.
3 THE COURT: I agree with you. It's admitted.
4 (Movants' Exhibit 56, e-mail stream between Mr. Lowitt and Mr.
5 Tonucci, was hereby received into evidence as of this date.)
6 BY MR. GAFFEY:
7 Q. Now, Mr. Lowitt, this is the e-mail that you wrote to Mr.
8 Tonucci on the weekend about the asset gathering project. And
9 you entitled it "Thanks for all your help getting us over the
10 goal line. We did it" with two exclamation points. Do you see
11 that?
12 A. I see that.
13 Q. And in the bottom -- the first e-mail in the chain, the
14 one at the bottom of the page, you say to Mr. Tonucci with a
15 copy to Mr. Berkenfeld, "While it would be great to just relax
16 and enjoy the victory, we think we need to launch an effort as
17 soon as possible to ensure we get the 15c3 lockup money and
18 also transfer the unencumbered box. Since everything has
19 turned out to be more complicated and difficult than expected,
20 I think we need a dedicated team including lawyers to make this
21 happen. Please coordinate with Berkenfeld on this. Thanks,
22 Ion." Do you see that?
23 A. I do.
24 Q. And in the e-mail next up in the chain, Mr. Tonucci
25 responds to you saying "Agreed. We'll use Robert for this.

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1 Have confidence. He knows how to get that done." See that?
2 A. I do.
3 Q. And that's a reference to Robert Azerad, is that right?
4 A. I believe that to be the case.
5 Q. And did Azerad report to Tonucci or did he report to Kelly
6 or did he -- who did Azerad report to?
7 A. Robert reported to Paolo --
8 Q. Okay.
9 A. -- Tonucci.
10 Q. And then you write this to Mr. Tonucci under the heading
11 "Thanks for all your help getting us over the goal line. We
12 did it!!": "You need to be close to it. If we don't succeed,
13 you and I are toast despite all our heroics." Do you see that?
14 A. I do.
15 Q. And when you wrote that e-mail to Mr. Tonucci, you were
16 telling him that you and he, as individuals, would be
17 professionally toast if this deal didn't get done, isn't that
18 correct?
19 A. No. That's not my interpretation of this. I think
20 what -- this is happening on the Saturday morning. On the
21 Friday, the additional source of value that you described had
22 been identified. And that was what I was referencing at the
23 bottom. But Paolo and I and others had worked extremely hard
24 to identify the value in the 15c3 lockup and the unencumbered
25 collateral and that that was a great success. That we'd now

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1 identified that collateral, it had -- the whole transaction had
2 been presented to the Court. The Court had approved that. But
3 what we needed to make sure was that we were able to
4 operationalize that and deliver the collateral that was part of
5 the agreement to Barclays. And Paolo said that he would have
6 Robert work on it. And my response was, he, Paolo, needed to
7 be engaged in it. He needed to stay close to it. It wasn't
8 something that he could delegate because it was so important.
9 And he needed to stay close to it. It would have been really
10 sad if having got so close to having a trade succeed that
11 Barclays would walk away at the last moment because we were
12 unable to deliver the collateral that was described in the deal
13 and that we needed to deal with the operational issues that
14 were associated with it.
15 So it wasn't that felt that we would be toast because we
16 hadn't or we couldn't find the value but that we had
17 responsibility to make sure that operationally we could effect
18 what had been agreed to between the parties and approved by the
19 Court. And we needed to make sure that we didn't let people
20 down with regard to that.
21 Q. So when you wrote to Mr. Tonucci, "you and I are toast",
22 you were worried about not letting people down? Is that your
23 testimony?
24 A. Was it -- we didn't want to be responsible at the stage
25 when the extra value and all the other items had been agreed

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1 that we were unable to deliver that.
2 Q. And your testimony to this Court then, sir, is when you
3 wrote to Mr. Tonucci in an email on which no one else was
4 copied, "If we don't succeed, you and I are toast despite all
5 our heroics", you were not expressing concern for your own or
6 Mr. Tonucci's professional future?
7 A. I was -- my understanding of it is exactly as I've
8 described it to you.
9 Q. It was a yes or no question, sir. Is it your testimony
10 that when you wrote to Mr. Tonucci in an email no one else was
11 copied on, the phrase "If we don't succeed you and I are toast
12 despite all our heroics", you were not expressing concern about
13 your own and Mr. Tonucci's professional future? Yes or no?
14 A. I don't read it as we were expressing concern about our
15 future.
16 Q. I take that as a no?
17 A. No.
18 Q. So by September of 2008, the company you've worked for for
19 fourteen years is going under, right? Correct?
20 A. Well, it declared bankruptcy.
21 Q. Okay. And the economy is in a shambles, correct?
22 A. There's clearly great financial turmoil.
23 Q. Okay. And your testimony is you had no concerns in
24 September 2008 about whether you'd have a job in the immediate
25 future?

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1 A. Again, what I'm saying is it wasn't what we were focused
2 on at that time. I wasn't thinking about my personal
3 circumstances. It may have come in in one way or another, but
4 really, what we were focused on was getting the transaction
5 accomplished for the firm and for -- because we felt that --
6 there was a general sense that if that hadn't happened, there
7 would be significant consequences in the board of financial
8 marketplaces.
9 Q. Now, if you did have concerns about your future, they were
10 resolved as early as the 16th of September, sir. Is that
11 right? That's the Tuesday.
12 A. I was made aware on the Monday by Bart that I was one of
13 eight people that Barclays had identified as critical to the
14 transaction.
15 Q. And on the 16th of September, the Tuesday, you met with
16 Rich Ricci from Barclays to talk about employment at Barclays,
17 is that right?
19 Q. And Mr. Ricci was one of the primary negotiators for
20 Barclays in the sale transaction, is that correct?
22 Q. And you knew that when you met with him on Tuesday the
23 16th of September, right?
24 A. Yes, I did.
25 Q. Okay. And in that conversation on Tuesday morning --

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1 well, let me ask you. The conversation with Mr. Ricci, was
2 that in the morning or was that in the afternoon?
3 A. Of the Tuesday?
4 Q. Yes.
5 A. It was in the morning of the Tuesday.
6 Q. Okay. And at the time you had the conversation with Mr.
7 Ricci, do you know if a deal had even been reached with
8 Barclays? If not documented, a deal in principle?
9 A. I mean, I wasn't part of the deal team. I wasn't involved
10 in the negotiations. I wasn't involved in the drafting. So I
11 wouldn't have known.
12 Q. Okay. You clearly --
13 A. Barclays had common -- were in the process of their
14 diligence. But I didn't know whether a deal had been reached.
15 Q. And again, it's an issue we'll come to in a while, sir.
16 But you did receive a communication from Martin Kelly in the
17 very early morning hours of the 16th telling you a deal had
18 been reached. Do you recall that?
19 A. I don't recall it but I have seen that e-mail.
20 Q. You've seen that e-mail?
21 A. I have.
22 Q. Okay. And did your conversation with Mr. Ricci take place
23 shortly after the time of that e-mail, which I'll remind you is
24 5:10 a.m.?
25 A. I think my meeting with Mr. Ricci took place before that.

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1 Q. Before 5:10?
2 A. Yes.
3 Q. Okay.
4 A. Is my recollection of it.
5 Q. And in that conversation you had with Mr. Ricci about
6 employment at Barclays, he explained at that first conversation
7 what employment terms Barclays would offer, is that right?
8 A. He did describe to me the compensation terms. He
9 obviously didn't have the details about any other terms.
10 Q. Okay. Now when you had this conversation with Mr. Ricci
11 on the 16th of September, Lehmans filed for bankruptcy the day
12 before -- well, let me ask you. Your compensation at Lehman
13 consisted of a base salary, correct?
14 A. Yes.
15 Q. And what was your base salary in 2008?
16 A. In 2008?
17 Q. Yes.
18 A. 200,000 dollars.
19 Q. Okay. And in addition to your base salary, you would have
20 received a bonus from Lehman in connection with your services
21 in 2008, correct?
22 A. Yes.
23 Q. And what level of bonus were you expecting for 200?
24 A. Again, I didn't have a specific expectation because we
25 hadn't completed 2008.

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1 Q. Well, what had your bonus been in 2007?
2 A. Well, my total compensation in 2007 was, I think, seven
3 and a half million dollars.
4 Q. Okay. And did you expect that your bonus from Lehman --
5 did you hope that your bonus from Lehman for 2008 would be
6 somewhere in that range?
7 A. Again, we didn't know where the compensation was going to
8 be -- what the compensation for 2008 was going to be. But --
9 Q. And you surely didn't know that after the bankruptcy
10 filing.
12 Q. Except you were pretty certain that Lehman bonus wasn't
13 going to get paid to you from Lehman, correct?
14 A. Lehman had declared bankruptcy.
15 Q. Okay. So you have the conversation with Mr. Ricci on the
16 morning of the 16th. And he offers you in that very first
17 conversation economic terms, yes?
18 A. Yes.
19 Q. And what -- generally, describe the economic terms, the
20 compensation terms, that Mr. Ricci offered you on the 16th.
21 A. He spoke with me about receiving eighty percent of my
22 prior year's compensation in 2008 -- well, beginning of 2009,
23 so February of 2009. And then two additional retention
24 payments that would be paid at the one year and the second year
25 anniversary.

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1 Q. And the compensation was guaranteed compensation for 2008,
2 is that right?
3 A. Yes.
4 Q. And the guaranteed compensation for 2008 was in addition
5 to two special award payments, correct?
6 A.
7 Q. I thought of the award payments as sort of retention
8 payments. And similarly, the bonus would be paid either in
9 February which meant I would need to stay on and work at
10 Barclays through February.
11 Q. Okay. So by the 16th of September, you know what your
12 next job is, right?
13 A. We actually didn't discuss a specific role when we met on
14 the 16th. But I did know that there was an employment offer
15 from Barclays if a transaction closed.
16 Q. Okay. And you knew regardless of what particular title
17 you'd have, it would be a job at a fairly high level similar to
18 the one you had at Lehman, yes?
19 A. I didn't know that but that would have been my fair
20 expectation.
21 Q. Well, you didn't think they were going to bring you in to
22 work in the back room, did you, sir?
23 A. Again, we didn't talk about what I was going to do.
24 Q. But you did talk about the fact that your compensation
25 would be roughly in the range of six million dollars, correct?

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1 A. Some of that would be deferred but yes. That was the
2 range.
3 Q. And some of it would be guaranteed, yes?
4 A. Yes.
5 Q. And some of it would be guaranteed in respect of your 2008
6 work at Lehman, yes?
7 A. It wasn't defined in terms of whether it was for my 2008
8 work at Lehman.
9 Q. Okay. Do you recall that part of your compensation
10 package from Barclays included something "2008 guaranteed cash
11 bonus" -- "2008 guaranteed cash bonus"?
12 A. Again, I didn't focus on the words but I was aware that I
13 was getting a guaranteed bonus for 2008.
14 Q. And do you recall that that was roughly in the range of
15 4,560,000 dollars?
16 A. That is my recollection.
17 Q. And the 4,560,000 dollars that you would be paid, was it
18 your understanding that that would be a bonus in connection
19 with roughly work at Barclays?
20 A. Again, it was -- my understanding was that it was in order
21 to retain me at Barclays. And my understanding was that that
22 was to assist them in the integration of Lehman and that I was
23 a valuable person for them to have as part of Barclays and they
24 wanted to attract me to come join their firm and to work with
25 them.

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1 Q. So in 2007, your last full year of employment at Lehman,
2 your compensation was, in total, in the range of seven million
3 dollars. Am I right about that?
4 A. That's right.
5 Q. Okay. And in 2008, it's your understanding that someone
6 thinks you're worth 4,560,000 dollars for three months of
7 transition work?
8 A. Well, I think they wanted to retain me at -- it's hard for
9 me to know what Barclays was thinking about. But what made
10 sense to me is that Barclays would have wanted me, given my
11 knowledge of Lehman, given my skills, my experience, they would
12 have wanted me to join their firm and that this was a way for
13 them to retain me. And they were thinking about many others in
14 the same way. They wanted -- if they were going to have the
15 transaction be successful for them, they needed to attract and
16 retain many of the key individuals at Lehman Brothers. And I
17 was one of those people that they'd identified as somebody they
18 wanted to attract and retain to their firm.
19 Q. Okay. And with regard to the question that I asked, you
20 thought that 4,560,000 dollars in bonus would be attributable
21 only to the three months that you'd work for Barclays for the
22 remainder of 2008?
23 A. I didn't -- I can't say whether I thought about it that
24 way. I thought of it as a retention payment to attract me to
25 come to Barclays rather than to go and look for employment

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1 elsewhere in the marketplace.
2 Q. And when you were offered by Mr. Ricci on the 16th of
3 September, on the Tuesday, a compensation package that came in
4 in a range of six million dollars, did you report that to
5 anybody at Lehman?
6 A. Bart was aware that I was one of the eight. And I do
7 recall speaking with Steve Berkenfeld about the fact that I was
8 one of the eight and that I had received an offer from
9 Barclays.
10 Q. And I believe you said that this conversation with Mr.
11 Ricci about compensation took place in the very early morning
12 hours of the 16th even before you heard from Mr. Kelly. Did I
13 hear that correctly?
14 A. That's my recollection.
15 Q. Okay. And do you recall in the few hours after Mr. Ricci
16 offered you six million in compensation attending a meeting of
17 the board?
18 A. I don't have a recollection of that board meeting.
19 Q. So I take it then, sir, you don't have a recollection of
20 speaking up at the board meeting and saying, I have some views
21 about whether we should do this deal but I've just been
22 approached by Barclays and they've offered me six million
23 dollars. You don't recall that? Having that thought process?
24 A. I don't recall going to that board meeting. My
25 understanding was that the Lehman advisors were aware that

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1 Barclays was going to be making offers to eight folks that they
2 wanted to retain. And I understood that the board would be
3 aware of it. But again, I don't recall that board meeting so I
4 can't recall how I was thinking at the time I was at the board
5 meeting.
6 Q. You would agree with me, sir, that a board meeting of a
7 iconic huge corporation -- it's just filed for bankruptcy,
8 considering a transaction to sell substantially all of its
9 assets -- is a fairly big event in the life of a chief
10 financial officer, do you not?
11 A. I wasn't involved in negotiating the transaction. And I
12 wasn't involved in drafting the transaction. And so, I think
13 that was probably components of why I don't recall that board
14 meeting. I was also, obviously, quite tired.
15 Q. And you're not able to tell the Court, sir, one way or the
16 other whether you disclosed to the board on the 16th of
17 September that a few hours before its meeting you'd been
18 offered a six million dollar package from Barclays to start
19 work with them right after the closing?
20 A. Again, my understanding at the time was that the Lehman
21 advisors and the board would be aware of this. But I don't
22 recall saying that at the board or being -- I just don't recall
23 that board meeting.
24 Q. Let's go through -- well, could you turn, sir, in the book
25 in front of you to Movant's Exhibit 108 which I believe is in

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1 evidence?
2 MR. GAFFEY: I'm told it is in evidence, Your Honor.
3 So I don't need to move it in.
4 Q. Mr. Lowitt, is this Exhibit M-108, the contract that you
5 signed with Barclays?
6 A. Yes. It is.
7 Q. And -- just want to go through the terms of the contract,
8 sir. First, let's get the date of the contract. You did
9 indeed sign this contract on the 18th, is that correct?
11 Q. Okay. And when you signed it on the 18th, did you return
12 it to Barclays signed? Did you give it to somebody from
13 Barclays?
14 A. My recollection is I signed it with Anthony Collerton in
15 the room and Anthony took it.
16 Q. And --
17 A. Mr. Collerton's --
18 Q. -- did the contract go back to Barclays?
19 A. I gave it to Anthony Carton who was the head of HR for
20 Lehman and I assume he gave it to Barclays.
21 Q. Okay. So you're signed up on the 18th of September having
22 an accepted an offer of employment on the terms and conditions
23 stated in the contract. That's what it says right above your
24 signature, yes?
25 A. Right. I signed this contract on the 18th recognizing

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1 that I was sort of one of eight people that their agreement
2 that they would sign on was a condition of the transaction.
3 And I didn't want to be an obstacle to the --
4 Q. Okay.
5 A. -- closing of the transaction.
6 Q. Let's go back to that period where I asked you to jump
7 ahead to the Friday.
8 MR. GAFFEY: Steve, can I have the calendar 2, please?
9 Q. Now, on Friday the 19th, sir, we talked a little bit about
10 the project where additional value was being searched for to
11 add to the transaction. Do you recall that?
12 A. I do recall on the 19th being --
13 Q. And you were involved in that project, yes?
14 A. I do recall Bart asking me to work on finding sources of
15 additional value.
16 Q. Well, it wasn't just Bart, was it? Hadn't you had a
17 conversation with Rich Ricci that morning --
18 A. I had a --
19 Q. -- about finding additional assets?
20 A. I do have a recollection of meeting with both Bart and
21 with Rich. But my recollection is that the direction to go
22 forward with this was Bart's.
23 Q. Okay. But what Rich Ricci told you was that it was very
24 important to get that done, isn't that right?
25 A. I think Bart told me it was very important to get done as

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1 well.
2 Q. What did Rich say to you?
3 A. Again, I don't recall what went on in the meeting with
4 Rich. But I do recall meeting with Rich --
5 Q. And --
6 A. -- as well.
7 Q. -- who would you be reporting to when you started at
8 Barclays? Did you know that at that point?
9 A. I did not.
10 Q. You've mentioned a couple of times, sir, these eight
11 employees who were offered contracts. And when I've asked
12 you -- signing this -- you keep mentioning the eight employees.
13 Tell us, which of the other eight employees you're talking
14 about were involved in that search for assets after talking to
15 Mr. Ricci on that Friday morning?
16 A. None of the eight were involved in that exercise. That
17 exercise was one that Bart had directed me to lead and I
18 involved Paolo in that.
19 Q. And Bart, you knew, was not one of the eight, correct?
20 A. I did know that.
21 Q. He had told you that, yes?
22 A. He did.
23 Q. And the other eight, whoever they are, were not working on
24 the team that was scrambling to find additional value to give
25 to Barclays on Friday just before the sale hearing, were they?

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1 A. No. They were doing other things.
2 Q. And the other eight that you're talking about had not had
3 a conversation with Mr. Ricci on the Friday morning about
4 finding those assets and on the Tuesday morning about working
5 for Barclays, had they?
6 A. My understanding is that they would have had meetings on
7 the Tuesday about working for Barclays But they weren't --
8 they were doing other things. Their responsibilities weren't
9 ones that would involve them naturally in this exercise about
10 additional value.
11 Q. Okay. We'll come back to it in a bit more in detail
12 today, sir, but do you have a rough idea of what the dollar
13 value was of the additional value that you and the other
14 members of that team found on that Friday morning?
15 A. Well, I think through the course of the Friday, we
16 identified around three billion dollars of --
17 Q. Three billion dollars?
18 A. -- of value, yes.
19 Q. And none of the other eight were involved in adding that
20 three billion dollars to the deal, were they, sir?
21 A. Well, I don't know when you say "adding that value to the
22 deal". None of them were involved in the activity of
23 identifying additional sources of value.
24 Q. And do you know, sir, if any of the other eight that
25 you've told us about had actually signed up their contracts

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1 during this week?
2 A. I didn't know what the others had chosen to do.
3 Q. When you sat with Mr. Collerton and you signed your
4 contract, none of the other eight were there, right?
5 A. No. I just met with Anthony.
6 Q. Okay. So as far as you knew, you're the only one who
7 signed his employment contract as early as the 18th of
8 September, correct?
9 A. I didn't know whether -- what others had chosen to do. I
10 didn't want to be an obstacle to the transaction . We were
11 working extremely hard to ensure that the deal closed. I
12 didn't feel I wanted to engage with lawyers and negotiating. I
13 wanted to focus on the task at hand which was to ensure that we
14 could close out the transaction successfully.
15 Q. Because if you didn't close out the transaction
16 successfully, sir, there'd be no job for you at Barclays, isn't
17 that right?
18 A. The reason we were so focused on the transaction closing
19 was because it was an extremely difficult time in the
20 marketplace. And we felt that it was in nobody's interest to
21 not have the transaction close.
22 Q. Your job offer from Barclays was contingent on the
23 transaction closing, correct?
24 A. Correct.
25 Q. So if the transaction doesn't close, you don't have a job

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1 at Barclays that following Monday morning, correct?
2 A. Correct.
3 Q. And that transaction's not going to close on that Friday
4 the 19th unless you and the others you're working with find
5 enough additional value to get that deal closed, is that
6 correct?
7 A. I don't know that to be the case. I know that we were
8 asked by Bart to find additional sources of value. If that had
9 not been successful or we had found a different amount, I can't
10 say how that would have been reflected between the negotiating
11 parties.
12 Q. Is it your testimony, sir, that when you were searching
13 for an additional three billion dollars in assets and you
14 thanked Mr. Tonucci the next day for getting you over the goal
15 line and you said to him, you and I are toast if this doesn't
16 get done, that you had no conception that the work you were
17 doing to add three billion dollars to the deal on the 19th
18 meant that the deal was at risk?
19 A. We knew it was very important for us to go out and find
20 the additional sources of value. It was obviously important;
21 Bart asked us to do it. And I did have a meeting with Rich and
22 Rich -- again, I don't recall what happened in that meeting
23 with Rich.
24 Q. So just to review, you're looking for assets on Friday
25 morning. And you find as much as three billion to add to the

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1 deal, correct?
2 A. We found three billion dollars of additional value.
3 Q. Okay. You know that finding additional value is important
4 to getting the deal closed, correct?
5 A. We know that it's important -- you're asking me to
6 speculate on whether it was essential for the deal to close. I
7 just wasn't in a position to know that.
8 Q. You've told Mr. -- you tell Mr. Tonucci the next day we
9 have to make sure these assets get over or you and I are toast,
10 correct?
11 A. I told Mr. Tonucci that given that that's now been agreed
12 and it's terms in the transaction that we don't want to create
13 a circumstance where we're unable to do what has been committed
14 on behalf of Lehman Brothers and approved by the Court as the
15 deal.
16 Q. Is that correct? Is that a yes?
17 A. I'm sorry. Maybe you have to repeat the question. I want
18 to make sure I'm --
19 Q. You knew the deal was at risk on the Friday, yes?
20 A. I didn't know the deal was at risk. I knew that what we
21 needed to do was to, at Bart's direction, identify the
22 additional three billion dollars of value.
23 Q. And Mr. Ricci. Not just Bart. You had spoken to Mr.
24 Ricci about this project of finding additional value, yes?
25 A. I do recall speaking with both Bart and about Rich -- and

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1 talking with Rich Ricci.
2 Q. So you're talking to the president of the company and one
3 of the primary negotiators for Barclays about finding billions
4 in additional value. Is it your testimony you had no sense of
5 whether this project was important for the closing of the deal?
6 A. I knew that the exercise was important.
7 Q. For the closing of the deal?
8 A. Again, I just was not in a position to say whether it was
9 necessary for the deal to close. But clearly, it was important
10 and we took it very seriously and engaged -- it was what
11 consumed almost all of our time on the Friday.
12 Q. And it was necessary for the deal to close for your six
13 million dollar contract with Barclays to become operative,
14 correct?
15 A. Again, I'm not -- I don't know that it was critical for
16 the deal to close.
17 Q. Sir, take a look at the contract which is at tab M-108.
18 A. M-108?
19 Q. Yes.
20 A. Okay.
21 Q. Exhibit Movants' 108 in evidence.
22 A. I see it.
23 Q. Are you there? Take a look at the first section entitled
24 "Starting Date". Do you see, sir, that section says "Your
25 employment shall commence on or before October 31st, 2008

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47
1 subject to the closing of the transaction between Barclays
2 Capital and Lehman Brothers." Do you see that?
3 A. Yes, I see that.
4 Q. And when you signed that contract, sir, you understood
5 that if the deal didn't close, you didn't have a job at
6 Barclays, correct?
7 A. If the deal didn't close, I would not have a job at
8 Barclays.
9 Q. Now, the first thing you did when you got to Barclays is
10 you were head of something called the TSA organization, is that
11 right?
12 A. Well, actually, the first thing that I was engaged with
13 with Barclays was as the head of integration. So I worked with
14 Barclays to ensure that all the Lehman businesses were
15 integrated into the Barclays control structure. So that was
16 actually my first job, the head of -- the director of
17 integration. And while I was the director of integration, I
18 also became the head of the transition services agreement
19 organization.
20 Q. Okay. And by the time you put your declaration in, in
21 opposition to this motion, you held the following titles, did
22 you not: you're a managing director, yes?
23 A. Yes.
24 Q. Head of global business assessment and strategic analytics
25 in the Barclays Wealth division?

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1 A. Yes.
2 Q. Chief operating officer of private banking, yes?
3 A. That was my position at the time.
4 Q. Okay. And remind me what your position is now?
5 A. I'm the chief operating officer for Barclays Wealth
6 Americas --
7 Q. Okay.
8 A. -- as well as the head of the global assessment of --
9 business assessment. Sorry. I don't have exactly the right
10 terms. But it's that role that you read out first.
11 Q. Okay. Now, I'd like to turn, Mr. Lowitt, to back to the
12 earlier part of the week, the time when the deal is being
13 negotiated. You understood that from -- you understood that
14 Barclays was interested in -- at that time, on the Monday, you
15 understood that Barclays was interested in the acquisition of
16 some of the assets of LBI, correct?
17 A. I mean, I knew that Barclays was buying businesses in LBI,
18 but -- the holding company had declared bankruptcy and that all
19 the other Lehman entities had gone down their own path. So
20 what we were dealing with was LBI.
21 Q. Okay. Well, what you understood from talking to Mr.
22 McDade -- you knew that Bart McDade had had conversations with
23 the Barclays folks on Monday the 15th, correct?
24 A. I did.
25 Q. And you knew that from talking to Mr. McDade, correct?

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1 A. Correct.
2 Q. And you had conversations with others about that fact,
3 correct?
4 A. I don't have specific recollection of that but it seems
5 extremely likely that I would have spoken with other people
6 about that.
7 Q. And some of the people you would have spoken to would have
8 included Paolo Tonucci, correct?
9 A. Yes.
10 Q. And Martin Kelly, correct?
11 A. Yeah. We would have been involved in the diligence for
12 Barclays and so they would have been aware of that.
13 Q. And what you understood from your conversation with Mr.
14 McDade was that Barclays were interested in potentially
15 transacting an acquisition of some of the businesses of LBI and
16 buying the businesses that were in LBI or some subset of those
17 businesses, is that right?
18 A. I don't know if I would've -- I wouldn't have known the
19 precise way that it would have been formulated. And I'm not
20 sure it would have been exactly as you've just read it out. I
21 was aware that Barclays was interested in doing a transaction
22 with Lehman. But I wasn't aware of specifics of how that was
23 being contemplated.
24 Q. Not to quibble, sir, but those words are yours. Would you
25 turn to page --

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1 A. Okay.
2 Q. -- 15 of your deposition which is the book?
3 A. Page 15?
4 Q. Yes, sir.
5 A. I'm sorry. Which is the --
6 Q. There ought to be a --
7 A. Which is the tab?
8 Q. -- tab in your book marked "Deposition Transcript". Do
9 you see that?
10 A. I'm sorry. I just don't know which tab you want me to
11 look at.
12 Q. It should be toward the back of the book. There's a tab
13 that says "Deposition Transcript". You with me?
14 A. Oh, "Transcript". I see it.
15 Q. Okay.
16 A. Sorry. Thank you very much.
17 Q. You're welcome. And turn to page 15, please. And if I
18 could direct your attention down to the question that begins on
19 line 23 of page 15.
20 A. Yep.
21 Q. Then we'll read over onto page 16 through line 8. I asked
22 you this question and you gave this answer: "And tell me what
23 you know about the contact Mr. McDade had with folks at
24 Barclays beginning on Monday the 15th."
25 "A. I understood from Bart that Barclays was interested in

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1 potentially transacting an acquisition of some of the assets of
2 LBI and buying the businesses that were in LBI or some subset
3 of those businesses and that the details would be worked out
4 over the course of the next day."
5 So will you agree with me, sir, that what you understood
6 that what you understood was that Barclays was interested in
7 potentially transacting an acquisition of some of the assets of
8 LBI and buying the businesses that were in LBI or some subset
9 of those businesses?
10 A. Yes, I do.
11 Q. Okay. Your understanding extended to that extent --
12 A. Yes, sir.
13 Q. -- that you described in your deposition?
14 A. Yes.
15 Q. And what you understood when you spoke to Mr. McDade was
16 that the details would be worked out over the course of the
17 next day, correct?
19 Q. Now, during the week --
20 MR. GAFFEY: And we'll put the calendar back up.
21 Q. During the week of the Barclays/Lehman sale transaction,
22 you were dealing with funding issues, correct?
24 Q. And you were dealing with personnel issues, correct?
25 A. Yes.

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1 Q. Did those personnel issues involve transmitting to others
2 employment offers from Barclays?
3 A. I don't believe that that was the week that we were
4 working with Barclays. I believe that that was the following
5 week. So the week after the transaction closed.
6 Q. Well, one of the things you were dealing with that week
7 was personnel issues with a number of people in the
8 organization very disconcerted with what had happened to Lehman
9 and worried about their futures. Is that right?
10 A. That's right.
11 Q. Okay. And one of those people who was very disconcerted
12 with what had happened and worried about his future was Martin
13 Kelly, isn't that right?
14 A. Again, I don't recall speaking with Martin about him being
15 distraught or being concerned about the future. We were so
16 busy working to ensure that Lehman continued to operate and
17 that what was necessary to work through the items of the deal
18 were being done, that that was really our focus for the course
19 of that week.
20 Q. Sir, did you approach Martin Kelly during the latter part
21 of the week of the 15th to talk to him about going to work for
22 Barclays?
23 A. Again, I don't have a recollection of that.
24 Q. Okay. Do you have any recollection of approaching Mr.
25 Kelly at all about going to work for Barclays?

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1 A. I do have a recollection of that. But my sense of it was
2 that those communications were the following week after the
3 transaction had closed.
4 Q. Did you have any conversations at all with Martin Kelly
5 during the week of the 15th through the 19th about the
6 possibility he would work at Barclays after this deal closed?
7 A. Again, I didn't have any -- I don't recall any
8 conversations about that. We were really extremely busy, as
9 you know.
10 Q. Well, not to busy to get your own contract signed up on
11 the 18th. Right, sir? You found time for that?
12 A. That --
13 Q. Okay.
14 A. I didn't spend very much time negotiating with Barclays
15 around the terms of that. It was something that I understood
16 was a necessary condition to the transaction closing.
17 Q. And did you find any time to talk to Mr. Kelly, Mr.
18 Tonucci or your other direct reports about whether or not they
19 could come with you over to Barclays?
20 A. Again, I think that people understood that the transaction
21 included -- that the value to Barclays, in part, was having the
22 Lehman folks join Barclays. But again, I don't recall having
23 any specific conversations with folks about them being employed
24 by Barclays.
25 Q. Would you agree with me, sir, that there might be some

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1 value to Barclays of having the chief financial officer signed
2 up to a contract while it's negotiating a transaction of this
3 size?
4 A. Well, I think that they were interested in having me as
5 one of the eight, in large part, because of my experience as
6 the CAO and because of my systems and operations and knowledge
7 of the processes of Lehman and knowledge of the people.
8 Q. When you were involved in the scramble to find additional
9 assets on the morning of the 19th, did you mention to anyone
10 who you were working with on that that you were already under
11 contract to Barclays?
12 MR. HUME: I'm going to object to the characterization
13 of the fact predicated in that question, Your Honor. He keeps
14 calling --
15 THE COURT: What's the objection?
16 MR. HUME: He keeps calling it a scramble for assets.
17 THE COURT: That's been called a scramble from the
18 beginning of this case and it's a perfectly fair question.
19 Your objection is overruled.
20 MR. GAFFEY: Your Honor, we'll offer deposition
21 testimony that that's the phrase Mr. Diamond, the president of
22 Barclays, used to describe that activity.
23 THE COURT: I don't need to know that. I've already
24 overruled the objection.
25 A. I'm sorry. Could you repeat the question.

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1 Q. When you were involved in the scramble to find additional
2 assets on the 19th, sir, did you mention to anyone you were
3 working with that you were already under contract to Barclays?
4 A. I don't recall mentioning that to anybody. I believe
5 that -- I mean, the person I was really working with there was
6 Paolo. And I think Paolo was aware that I was one of the
7 eight. But I don't recall a specific conversation that I
8 can --
9 Q. When you wrote to Paolo the next day and said, you and I
10 are toast if this doesn't get done, did you know if Mr. Tonucci
11 had already spoken to anybody about going to work for Barclays?
12 A. I don't know that.
13 Q. Now, in addition to your work around funding issues and
14 personnel issues, you fielded specific requests from Mr. McDade
15 in connection with the sale transaction, correct?
17 Q. And you reported directly to Mr. McDade on those matters,
18 is that right?
19 A. I did report to Bart.
20 Q. Okay. And one of the things you did during the
21 negotiations on Monday and into early Tuesday morning -- that's
22 the 15th over into the 16th -- you knew that Barclays
23 representatives were meeting with their Lehman counterparts to
24 get a better understanding of the inventory, the assets, yes?
25 A. Yes. I wasn't involved in the negotiations which, I

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1 think, was one of the things that you'd said.
2 Q. When you say
3 A. But --
4 Q. When you say you weren't involved in the negotiations, you
5 don't mean to suggest that you had no role that week in
6 connection with the transaction, do you?
7 A. No. I don't mean that. I mean that I wasn't in the
8 negotiating session that Bart was having with the senior folks
9 at Barclays.
10 Q. You were doing work in support of the negotiations during
11 that week, correct?
12 A. I was certainly providing information to various folks. I
13 was helping to make sure that the right Barclays people were
14 meeting with the right Lehman people. So I would characterize
15 that as I was supporting the effort but I wasn't actually a
16 negotiator.
17 Q. Okay. And people who worked directly for you, your direct
18 reports, Mr. Kelly and Mr. Tonucci, were directly involved in
19 supplying data to the negotiators, yes?
20 A. They -- certainly they were.
21 Q. Okay. And you knew that they were doing that, yes?
22 A. Yes.
23 Q. And you kept your eye on what they were doing in support
24 of these very important negotiations, yes?
25 A. Well, I'm not sure what you mean by I kept my eye on --

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1 Q. Well, they worked for you, sir. Did you make sure they
2 were doing a good job?
3 A. I was in -- I was making sure that what was necessary to
4 be done was to the best of my ability being done. And in many
5 cases, that involved asking Paolo and Martin and others to get
6 involved. I do think, actually, with regard to -- that Bart
7 was actually giving direction to some of these folks as well
8 and that was fine, too.
9 Q. And you knew at that time that Steve Berkenfeld was
10 providing legal advice, yes?
11 A. Yes.
12 Q. Okay. Well, when you say you were not -- you did not
13 negotiate the terms of the sale transaction, that's correct,
14 right?
16 Q. All right. And by that you mean you weren't doing the
17 actual horse trading. You weren't at the table saying I'll
18 give you this in return for that.
19 A. I wasn't at the table that Bart was at with the senior
20 Barclays folks. And I wasn't involved with the -- when the
21 traders met with their counterparts to determine what they
22 thought appropriate value for assets was.
23 Q. And you knew, in substance, that the deal would involve
24 the transfer of the assets of the corporation of which you were
25 chief financial officer, correct?

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1 A. I mean, I was aware that people were going over,
2 businesses were going over and assets were going over to
3 Barclays.
4 Q. Well, you don't mean to suggest, sir, that as chief
5 financial officer, the value of the assets and liabilities that
6 would be transferred in this transaction was a matter of no
7 interest to you, do you?
8 A. I'm not saying it was of no interest to me. What I am
9 saying is that I wasn't involved in the structuring of the
10 transaction and the negotiating of the transaction.
11 Q. Well, I -- and you don't mean to suggest that as the chief
12 officer, the value of the assets that were under discussion was
13 a matter about which you had no view or knowledge, correct?
14 A. Well, I'm not sure I would say I had a view on it. It
15 wasn't -- that wasn't the role that I was playing.
16 Q. Okay. But you certainly played a role in providing
17 information to the folks that were doing the negotiation,
18 correct?
19 A. The people who worked in the finance department who did
20 report in to me were the ones providing that information.
21 Q. But you also certainly played a role in providing
22 information to those folks who were doing the negotiation,
23 correct? You, sir. You certainly did.
24 A. Yes. I'm just not recalling precisely pieces of
25 information that I was providing. But I was certainly

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1 supporting Bart in the negotiation.
2 Q. And others?
3 A. I don't recall others but I know others were involved in
4 the negotiation.
5 Q. It's not your testimony that you had no conversations with
6 your subordinates, Martin Kelly and Paolo Tonucci, during the
7 week of the 15th about this transaction, is it, sir?
8 A. No. We certainly did have conversations about --
9 Q. And you kept yourself apprised of the progress of the
10 valuations that were being done with regard to the assets that
11 were going to be transferred, correct?
12 A. That I was aware that the traders were meeting with their
13 counterparts and that out of that process was a series of
14 agreements between the traders and that we were, in finance,
15 tracking that and that was one of the things that I was
16 involved with.
17 Q. Well, you were maintaining a sense of where the
18 discussions were coming out, yes?
19 A. Yes.
20 Q. And you knew those discussions involved the value of
21 Lehman assets and the price Barclays was willing to pay for
22 those assets, correct?
23 A. I'm just trying to be precise. I was aware that there
24 were meetings going on between Barclays traders and Lehman
25 traders and out of those discussions, there was a -- agreements

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1 were emerging as to the appropriate value for those assets in
2 the volatile environment that they were in and that those were
3 being aggregated up.
4 Q. And you were involved in collecting input that was being
5 generated by different parties vis-à-vis the assets, yes?
6 A. Yes.
7 Q. And you were knowledgeable about some of the asset classes
8 that Barclays was going to buy, correct?
9 A. Yes.
10 Q. And in addition to Mr. Kelly and Mr. Tonucci, Gerry Reilly
11 was also involved in this asset valuation project, yes?
12 A. I mean, Gerry was certainly involved, as the head of
13 product control, in providing a lot of the information to the
14 traders was my understanding.
15 Q. And he's another one of your direct reports, yes?
16 A. Yes.
17 Q. And you knew that there was an effort during the
18 negotiations to match up assets and liabilities, correct?
19 A. Well, I'm not sure I know what you mean by "match up". I
20 know that there was an effort to -- that the transaction
21 included assets as well as liabilities.
22 Q. Well, let me ask you to take a look at your deposition
23 transcript again, sir, at the back of the book --
24 A. Sure.
25 Q. -- and turn to page 39. I'll read you a question and

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1 answer from there and then I want to ask you what you meant by
2 it.
3 A. Okay.
4 Q. At 39, starting at line 16, and continuing over to page
5 40, line 3, I asked this question and you gave this answer:
6 "Tell me what you did in terms of collecting input that was
7 generated by different parties vis-à-vis the assets that were
8 going to be part of the transaction.
9 "A. There were a number of people that were, you know,
10 involved in that. There was obviously input from the various
11 business teams with regard to which assets the Barclays folks
12 were interested in purchasing and which ones they weren't.
13 There was, you know, an effort to match up assets and
14 liabilities and, again, a number of folks in Lehman were
15 involved in that effort."
16 Do you see that?
17 A. I do.
18 Q. And what did you mean when you testified -- that was a
19 truthful answer to the question I put to you then, right?
20 A. Yes.
21 Q. And what did you mean, sir, when you said that there was
22 an effort -- that there was -- that "folks were interested in
23 purchasing...[and t]here was, you know, an effort to match up
24 assets and liabilities"?
25 A. Well, I think it means that -- my sense of that is that

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1 teams were talking about the assets and they were also talking
2 about the liabilities. I don't know whether they were matching
3 them identically but there certainly was discussion about both
4 assets and liabilities.
5 Q. You knew there was an effort to "match up" assets, yes?
6 Your words, sir.
7 A. Yeah, I know. I just tried to be clearer about what would
8 have meant by "match". "Match" would have meant that there
9 were assets and there were associated liabilities. And so,
10 people were talking, within an asset class, by my
11 understanding, 'cause I wasn't there, both assets and
12 liabilities.
13 Q. You did have knowledge about an effort to match up assets
14 and liabilities 'cause you told me about it at your deposition,
15 right?
16 A. Yes.
17 Q. Okay. And the effort was to match them up not just know
18 what the assets were and the liabilities were but to match them
19 up, yes?
20 A. Again, my understanding of "match" -- and I really -- just
21 trying to be precise -- was that not necessarily they would be
22 identical but that there was a sense in which they would be
23 aligned.
24 Q. And when you were testifying at your deposition, you were
25 trying to be just as precise as you are now?

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1 A. Yes.
2 Q. Now, you learned at some point -- we talked about this a
3 while ago. You learned at some point on the morning of the
4 September 16th that an agreement had been reached between the
5 parties, yes?
6 A. On the -- yes, I did.
7 Q. And you learned that because someone from the negotiation
8 room came out in the hallway and announced that a deal had been
9 reached, correct?
10 A. Well, my recollection of that was that that was
11 actually -- that the contract had been signed. My
12 understanding of the deal being reached was probably -- I'm
13 sorry. That's what -- I was on 32 and we heard that a deal had
14 been reached. My recollection of that is that it was -- that
15 that was when the contract terms had been agreed.
16 Q. You don't mean the written contract being signed. You
17 mean the terms had been agreed, yes?
18 A. Yes.
19 Q. Okay. And you were gathered on the --
20 A. Thirty-second floor.
21 Q. -- thirty-second floor with Martin Kelly among others,
22 yes?
23 A. Again, Martin may well have been there. And my
24 recollection is Skip and -- Skip McGee and Paul Parker. And it
25 may also have included Martin.

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1 Q. And it may also have included Gerry Reilly, yes?
2 A. It may have.
3 Q. Okay. Now, as the chief financial officer of Lehman, it
4 was your understanding on the 15th and the 16th of September,
5 2008, that Lehman's books carried accurate marks for securities
6 that were recorded therein, is that correct?
7 A. My understanding -- you know, my belief was that the books
8 and records for the 15th reflecting the activity of the 15th
9 were accurate. Those books and records would have been
10 available through the normal finance process on a one-day lag.
11 So those would have been available on the 16th. But the 15th
12 representing 15th's activity would have been accurate was my
13 understanding.
14 Q. So on the 15th, it was your understanding that Lehman's
15 books carried accurate marks for securities that were recorded
16 therein, correct?
17 A. The books and records for the 15th reflecting the 15th's
18 activity would have been accurate and those books and records
19 would have been available on the 16th.
20 Q. And that pricing -- the assets that were on Lehman's books
21 were securities that were priced based on market sources. And
22 your books and records were accurate, yes?
23 A. Again, the process of marking the books and records would
24 have involved the traders. It would have involved finance. It
25 would have involved -- for many of the assets, there would have

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1 been feeds that were available that would have informed that
2 process. And my understanding is that the outcome of that
3 whole process would generate accurate books and records for the
4 activity of the 15th available on the 16th.
5 Q. Okay. And when you say the activity of the 15th, you're
6 putting this accuracy at a point at the close of business on
7 the 15th of September, the Monday, yes?
8 A. The activity that occurred through the course of the 15th.
9 Q. I'm just trying to nail down "the activity that occurred
10 through the course". Do you mean at the close of business they
11 were accurate?
12 A. What I'm saying is that the books and records for the
13 15th -- my understanding is the process that finance went
14 through would have generated accurate books and records and
15 that those books and records would have been available on the
16 16th in the normal course because it took a day to generate the
17 books and records reflective of the activity of the previous
18 day.
19 Q. So the books are accurate and properly marked at the close
20 of business on the 15th going into the night of the 15th?
21 A. The books and records that would be available on the 15th
22 during the day would have been reflective of the activity -- or
23 would have been for Friday's close because that is what would
24 have been available through the day of the 15th or on the day
25 of the 15th.

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1 Q. Were there some -- you referred before to books that were
2 marked -- I understood your answer to be automatically without
3 human intervention. Is that right?
4 A. Well, the -- maybe it's helpful if I just explain the
5 process whereby books and records are actually generated.
6 Q. It'd be helpful if you just answered my question. Were
7 some of the books marked electronically without human
8 intervention?
9 A. Some element of what went into the marking would have been
10 automatic, is my understanding. Obviously, not --
11 Q. Okay. And that automatic marking --
12 A. -- product control --
13 Q. -- relates to the more liquid assets, correct?
14 A. I actually don't know exactly how that would have worked.
15 I do know that the whole process of generating books and
16 records typically took a day. And occasionally, if things were
17 chaotic and difficult, it could take more than a day to
18 generate.
19 Q. And during the period, say, in August of 2008 or the first
20 week of September 2008, you understood enough about the system
21 to certify that the books and records were accurate as of
22 particular days, sir, right? You may not know how to press the
23 buttons on the computer but you know enough about the system to
24 certify whether the books and records of the corporation were
25 accurate on any given day, correct?

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1 A. Again, it's just worth clarifying that books and records
2 of a particular day reflect the activity of that particular day
3 and are available the following day. So, yes, I believed that
4 the process that was in place to generate the books and records
5 generated accurate marks associated with those positions on the
6 books and records and that the activity of a particular day
7 would be through the process reflected in the following day
8 which is when you would get the information about the P&L and
9 when the books and records would be completely marked. And the
10 process involving both the traders and the finance folks was
11 complete.
12 Q. Okay. And what you've just described, the process, the
13 traders was accurate and complete, was all done and accurate by
14 the end of the day on the 15th and available on the morning of
15 the 16th, yes?
16 A. No. On the 15th, finance would typically have completed
17 its process associated with the activity of the previous day,
18 which would have been the 12th. So what would have been
19 available on the 15th would have been the books and records
20 reflecting the activity of the 12th.
21 Q. So that would be -- if you wanted to know the marks at the
22 end of the 15th, what you've just described is what you would
23 look to, is that right?
24 A. No. The marks on the 15th would have been available on
25 the 16th in the normal course. T plus one. If the process was

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1 more chaotic, it would potentially take longer than a day to
2 generate the books and records.
3 Q. And if --
4 MR. GAFFEY: May I have one moment, Your Honor?
5 THE COURT: Sure.
6 (Pause)
7 Q. So the marks for the 15th would have been available on the
8 morning of the 16th, yes?
9 A. I wouldn't have said the morning of the 16th. Typically,
10 the --
11 Q. Through the day on the 16th?
12 A. The activity of the 15th would have been processed
13 through -- in the overnight batch. Finance would have engaged
14 in its process on the 16th relative to the activity of the
15 15th. And typically, the P&L and the books and records would
16 be available towards the end of the day the following day,
17 potentially longer, but it would have been available the
18 following day.
19 Q. And the books and the P&L for the 15th were available, as
20 they typically were, at the end of the 15th, yes?
21 A. No. I just said that the books and records for the 15th
22 would have been available with a one-day lag, so they would
23 have been available on the 16th, in the normal course, and it's
24 possible it would have taken into the 17th for the activity of
25 the 15th to be represented in the books and records of the

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1 firm.
2 Q. And it was your understanding that on the 15th and the
3 16th, with that process in mind, that Lehman's books carried
4 accurate marks for securities recorded therein, correct?
5 A. My understanding on the 15th --
6 Q. It's a yes or no question, sir.
7 A. Yes.
8 Q. And the assets that were on Lehman's books were securities
9 that were priced based on market sources, correct?
10 A. Some of the assets on Lehman's books would have been
11 priced based on market sources, those for which there was
12 publicly available information. And some of the assets would
13 not have been ones where there were publicly available sources.
14 And those would have had to have been marked by the traders and
15 by finance checking on what the traders were doing.
16 Q. And the traders and finance that you're referring to are
17 Lehman traders and Lehman finance people, yes?
18 A. Yes. Thank you for clarifying that.
19 Q. And you believed on the 15th and the 16th that Lehman's
20 books properly reflected the market price of those securities,
21 correct?
22 A. The books for the 15th which would have been available on
23 the 16th would have reflected, I believe, the market movements
24 of the 15th.
25 Q. Sir, you have to either pull the microphone in or sit a

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1 little closer.
2 A. Okay. Thank you.
3 (Pause)
4 THE COURT: Mr. Gaffey, would this be a convenient
5 time for a morning break?
6 MR. GAFFEY: It would, Your Honor, yes.
7 THE COURT: Let's break until ten after 11.
8 THE WITNESS: Do I just stay here, sir?
9 THE COURT: Oh, no. You can break, too.
10 THE WITNESS: Okay. Thank you.
11 (Recess from 10:57 a.m. until 11:14 a.m.)
12 RESUME DIRECT EXAMINATION
13 BY MR. GAFFEY:
14 Q. The marks are collected overnight and then they're
15 available before the open of the markets the next day, correct?
16 A. No. There's a -- the activity of a particular day that is
17 reflected in the finance systems, that then works through a
18 batch overnight and then there's a process that finance would
19 be involved with of taking -- assessing what the changes were
20 relative to the prior day, going back to traders and
21 understanding what the source of the changes were and,
22 essentially, providing a sort of control function over what it
23 is that the traders have input. And that process, which may
24 also include -- and again, I just don't know the details of
25 it -- involve them sort of booking things into finance systems

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1 to reflect what this output is in the morning. That typically
2 takes a day. So the process of generating the what we call --
3 what we would refer to as the P&L and the books and records
4 that underlay that P&L would typically be available T plus one.
5 So one day after the activity. And occasionally, that process
6 would run more than a day. But typically, you would expect to
7 see the P&L and the books and records a day after the activity
8 of a particular day. So Friday's activity would be reflected
9 on Monday -- would be available on Monday. Monday's activity
10 available on Tuesday.
11 Q. And as CFO, it was your understanding that this was done
12 and the books were then accurate on the -- at open of business
13 on Tuesday morning the 16th.
14 A. Again, open of -- you know, what would have been available
15 on Tuesday --
16 Q. Um-hmm.
17 A. -- by the end of the day, in the normal course, would have
18 been the activity of Monday. And again, I didn't actually see
19 the P&L that day but I believed that that process was
20 continuing --
21 Q. Okay. Thank you. You talked a bit before about the board
22 meeting, sir, and I think you told us you don't recall being at
23 the board meeting, is that right?
24 A. I'm sorry. Which board meeting are you referring to?
25 Q. I beg your pardon. The board meeting on the morning of

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1 Tuesday the 16th of September.
2 A. Yeah. I don't recall that board meeting.
3 Q. Would you normally have attended board meetings in your
4 capacity as chief financial officer?
5 A. I had been attending a number of the board meetings. And
6 I don't think I was a member of the board. But typically, Dick
7 would have included me. But possibly there were board meetings
8 that he had that I wasn't included in.
9 Q. Okay. And just for the clarity of the record, when you
10 say Dick would have included you, you're referring to Richard
11 Fuld?
12 A. I'm sorry. Yes, Richard Fuld.
13 Q. Umm --
14 A. Junior. -- no. Senior.
15 Q. Would you take a look at Exhibit M-9, please, sir? It's
16 in your book. It's in evidence. They're the minutes of the
17 meeting of the 16th of September, 2008.
18 A. I see those.
19 Q. And you see your name there listed as also present by
20 invitation?
21 A. I do see that.
22 Q. All right. Does that help refresh your recollection as to
23 whether you attended the board meeting on the 16th of
24 September, 2008?
25 A. Again, it's extremely likely that I was there. And I know

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1 you're going to show me something showing that in the minutes
2 that I did speak. So -- I don't have a recollection of it but
3 it's likely that I -- that I was there. I don't know which
4 portion I was there for but certainly, the minutes will reflect
5 that I spoke and I was likely there even though I don't have a
6 recollection of it.
7 Q. Okay. And --
8 (Pause)
9 Q. Well, you've obviously been through the minutes so I'll
10 save you the time. But you agree with me, sir, that the
11 minutes reflect that you spoke at the meeting. You just don't
12 remember one way or the other whether you actually were there.
13 A. Correct.
14 Q. Did you come to understand at any point, sir, the nature
15 of the transaction that the board approved?
16 A. Again, I wasn't involved in the negotiation of the trade
17 and I was not involved in the sort of drafting. I had a
18 understanding of element of it or what I thought was in the
19 transaction. But, as I say, I wasn't a negotiator and I wasn't
20 one of the people who was structuring the transaction or
21 drafting the documents.
22 Q. Did you come to understand that the board authorized the
23 transaction which would be roughly an equivalent exchange of
24 assets and liabilities?
25 A. Again, I don't have a recollection of that board meeting

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1 so I don't know what the board approved. I did -- I do have a
2 recollection that the board had approved the transaction which
3 is why it moved forward.
4 Q. When you reviewed the minutes, you saw, did you not, that,
5 on page 4, in the third paragraph from the bottom, it says "Mr.
6 Russo asked for any questions or comments. The director
7 summarized the consideration as follows: approximately, one
8 billion to the corporation for 745 Seventh Avenue; 250 million
9 to LBI for the Lehman Brothers name; and approximately 450
10 million to the corporation for the data centers. For LBI, the
11 transaction was described as a wash with Barclays assuming
12 liabilities, including employee liabilities and contract cure
13 amounts, basically, equivalent to the assets." Do you see
14 that?
15 A. I do.
16 Q. Did you come to understand during the week beginning
17 Monday, September 15th that that was the nature of the
18 transaction that the Lehman boards had approved?
19 A. Again, in the course of that week, what I was really
20 working on was ensuring that we could continue to fund the
21 firm, that the -- we were able to maintain the orderly wind-
22 down of our positions. And while I had understandings of
23 elements of the deal, I can't say that through the course of
24 that week I understood exactly this 'cause I just didn't know
25 the terms of that and I didn't review the contract --

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1 Q. You knew there would come --
2 A. -- so I didn't know --
3 Q. I beg your pardon. Did I -- did you finish your answer?
4 A. Yes, sir.
5 Q. Okay. You knew there would come a point, sir, where
6 assets of the company of which you were chief financial officer
7 would, if the deal closed, be transferred to Barclays, correct?
8 You understood that much about the deal.
9 A. Yeah. I don't know the word "transferred". But I did
10 understand that Barclays was acquiring a series of assets.
11 Q. Okay. And you also understood that Barclays was assuming
12 a variety of liabilities, correct?
13 A. I did understand that.
14 Q. You did?
15 A. I did.
16 Q. And you knew when you were looking for assets to add to
17 the deal on Friday morning, September 19th, that those were
18 assets that would be transferred to Barclays, correct?
19 A. I didn't know that those were going to be transferred to
20 Barclays. What I knew was that I was asked by Bart to go and
21 identify those. How that was going to be dealt with between
22 the negotiating parties was not something that I knew.
23 Q. Did you have any understanding when you were involved in
24 those activities on the Friday morning as to whether the
25 addition of those assets would keep the deal in balance?

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1 A. Again, I didn't know how it fitted into the overall
2 transaction. I knew that it was important to go and identify
3 the sources of value. And that's what I and Paolo and others
4 were involved with.
5 Q. Is it your recollection that for that project on Friday
6 morning you were given a target of the number of the value of
7 assets that needed to be collected?
8 A. Yes.
9 Q. What's your recollection?
10 A. My recollection is we were looking for between three and
11 four billion dollars.
12 Q. Okay. Were your instructions any more precise than
13 between three billion dollars and four billion dollars?
14 A. My recollection was that Bart asked me to go and identify
15 additional sources of value and that my recollection was what
16 we were looking for was between three and four billion dollars.
17 Q. Did Mr. McDade tell you that when you got to a certain
18 number on the Friday morning you and your co-workers should
19 stop looking for more assets?
20 A. I don't recall the precise conversation I had with Bart.
21 My sense of it and what I've relayed is that we were to go and
22 identify additional sources of value. And my recollection is
23 the amount was between three and four billion dollars.
24 Q. Okay. I just want to be a bit more precise here. When
25 you say your recollection is it was between three and four

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1 billion dollars, are you not recalling whether it was three,
2 four, something in between, or were your instructions at the
3 time find between three and four billion dollars?
4 A. No. My instructions weren't to find between three and
5 four. My recollection -- my instructions were to go and find
6 additional sources of value. And then in answer to your
7 subsequent question, which was how much, my understanding or my
8 sense is that what we were looking for was between three and
9 four. But I don't recall an instruction to find between three
10 and four. I had an instruction to go and identify additional
11 sources of potential value.
12 Q. Now, when you learned on the morning of Tuesday, September
13 16, about the terms of the deal -- that's when you learned,
14 early morning, Tuesday, September 16th, the terms of the deal,
15 correct?
16 A. I certainly knew that a deal had been reached. And I
17 understood certain elements of the terms.
18 Q. Okay. And one of the elements that you understood was
19 that Barclays was going to purchase a substantial block of
20 assets for less than the amount that Lehman had on its books,
21 correct?
22 A. I understood that there was a process whereby the traders
23 had met and that they had determined what was appropriate value
24 and that the outcome of all of those discussions was some
25 amount which my understanding involved a reduction relative to

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1 our Friday book value. But it wasn't something I knew about;
2 it's something that I understood.
3 Q. You did understand it was to purchase a substantial block
4 of assets, correct?
5 A. Yes.
6 Q. And you understood that the block of assets would be
7 purchased for less than the amount that Lehman had on its
8 books, correct?
9 A. Less than it had on its books as of the 12th, yes.
10 Q. As of -- excuse me?
11 A. The 12th.
12 Q. And this was to reflect a sort of bid offer that reflected
13 both the size of the purchase as well as volatility in the
14 market, is that correct?
15 A. My understanding was that it involved the bid offer --
16 that was how I described it -- the bid offer which included the
17 volatility in the marketplace which would have included the
18 volatility on the Monday as well as the size of the
19 transaction.
20 Q. You corrected my questions a bit there, sir, to make sure
21 to say as of Friday, September 12th. You recall that?
22 A. I just wanted to be precise that the marks that were --
23 that the -- my understanding is that the marks that were being
24 utilized in this exercise were the marks reflective of the
25 12th.

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1 Q. Okay. And to be that precise you need to say it was the
2 marks as of the 12th.
3 A. Well, I didn't know that but that's my understanding of
4 what was.
5 Q. And you were as precise at your deposition as you're
6 trying to be today, correct?
7 A. I was being accurate in my deposition and I'm being
8 accurate today.
9 Q. Okay. Would you take a look at page 42 of your deposition
10 transcript?
11 A. Sure.
12 (Pause)
13 A. I'm on 42, sir.
14 Q. At 42 starting at line 6. And I'm going to read to you
15 through page 43, line 2:
16 "Q. Do you know if, when you learned on the Tuesday morning
17 that there was a deal, what is your memory of the terms that
18 you learned?
19 "A. I didn't know all of the -- I wasn't party to all of the
20 terms. You know, I was aware that Barclays was going to
21 purchase a substantial block of assets for less than the amount
22 that we had on our books to reflect a sort of bid offer that
23 reflected both the size of the purchase as well as the inherent
24 volatility in the market which was significant that week.
25 "Q. So was Barclays agreeing to buy the assets at a fixed

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1 discount?"
2 And then there's an objection.
3 "A. Barclays were going to purchase the assets at a price.
4 They were willing to pay to purchase a substantial block of
5 assets at a time that was tumultuous in the marketplace. That
6 amount was less than the amount that those assets were on our
7 books for."
8 Do you see that?
9 A. I do.
10 Q. And then let's just continue through lines 3 through 11 on
11 page 43:
12 "Q. Was it a discount from the amount shown on Lehman's books?
13 "A. You keep asking whether it was a discount. It was an
14 amount that was less than the amount that we had it on our
15 books for which reflected a bid offer that was consistent with
16 the size of the purchase as well as the volatility in the
17 marketplace."
18 Were those truthful and precise answers that you gave to
19 the questions I asked you at your deposition?
20 A. Yes.
21 Q. Is there a reason at your deposition, sir, you didn't see
22 fit or need to add that it was the books from Friday, the 12th
23 of September?
24 A. Where I talk about it here we had it on our books for, I
25 understood that your understanding and the understanding

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1 generally was that it was the books -- the marks that were
2 available on the Monday which were the Friday marks. I wasn't
3 asked specifically which books. And I'm ensuring today that
4 we're clarifying which marks we're talking about.
5 Q. So you're being a bit more precise about this today than
6 you were at your deposition?
7 A. They're both accurate, both what I said at my deposition
8 and I'm now saying the same thing and --
9 Q. Just a bit more precisely.
10 A. I'm including an additional detail.
11 Q. Okay. And you're including that additional detail that
12 you chose not to include at your deposition for what reason,
13 sir? Have you talked to anybody about this issue?
14 A. It's to ensure that there's clarity on what I understood.
15 Q. Did you think there was anything about your deposition
16 answer that needed to be clarified when you gave it?
17 A. No. I understood that people would have understood which
18 books we were referring to.
19 Q. And you didn't see the need to correct the question asked
20 then or to make your answer more precise to make sure you were
21 now saying it was the books from the 12th. Is that right?
22 A. That's right.
23 Q. And in any event, what both answers do concede is that the
24 price was less than the amount shown on Lehman's books,
25 correct?

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1 A. Yes.
2 Q. And the amount shown on Lehman's books would be its book
3 value, wouldn't it?
4 A. The amount shown on Lehman's books would be the market
5 value as of a particular day. And that would have been
6 reflected on Lehman's books.
7 Q. All right. So whatever was the last day this process was
8 followed or whatever was the last day the work was done, book
9 value as of September 16th, 2008 is the state of the books as
10 of September 16th, 2008. Agreed?
11 A. Can you just repeat so I just make sure I'm not --
12 Q. Well, you don't have to quali -- if I said book value as
13 of the 16th of September --
14 A. Right.
15 Q. -- it would be whatever your books showed as of the 16th
16 of September, correct?
17 A. Well, they'd be what they showed for the 16th which would
18 have been available on the 17th. That's why I am -- wanted to
19 clarify that when we talk about the books and records for the
20 16th, what we mean is the books and records that reflect the
21 activity of the 16th that would be available on the 17th and
22 there isn't confusion that the books and records of the 16th
23 reflect activity that are available on the 16th, reflect
24 activity of the 16th, because I don't think that would be
25 accurate.

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1 Q. And when Barclays paid less than the amount shown -- "that
2 we had on our books", as you said at your deposition, it paid
3 less than the book value as of the 16th of September 2008,
4 correct?
5 A. When you say "paid less", again, I just want to make
6 sure --
7 Q. Gave less money in return for the assets it acquired.
8 A. They --
9 Q. That's what I mean by "paid less".
10 A. They valued those assets at a level that was less than was
11 on our books. They didn't pay -- I don't know what they paid
12 for in the course of the deal. I do know that the exercise
13 that people engaged in ensured that the marks or that the
14 outcome of that process was a series of marks associated with
15 assets that were less than the amount that were on our books --
16 Q. As of the 16th.
17 A. -- as of the 12th.
18 Q. What about as of the 16th?
19 A. I don't know what -- how it was relative to the marks of
20 the 16th.
21 Q. Well, if your books hadn't changed, sir, that would be
22 your books as of the 16th, wouldn't it?
23 A. Well, I think of the books of the 16th as reflecting the
24 activity up to and including the 16th which would have been
25 available on the 17th.

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1 Q. Do you know, sir, whether the plan with regard to the
2 transaction was to mark down the books to reflect the agreed
3 price between Lehman and Barclays?
4 A. I know that we were going through an exercise where we --
5 I do know that -- well, what do I know? I understand that
6 there was going to be an exercise to mark the books to reflect
7 the agreements between Barclays and Lehman.
8 Q. And in all your time as chief financial officer or in your
9 career, sir, had you ever seen the books of a broker-dealer
10 marked to reflect an agreed price with one purchaser?
11 A. It was -- I'm not aware of another circumstance like that.
12 Q. Have you ever seen -- are you aware of any circumstance as
13 CFO or before where the books of a broker-dealer were marked to
14 reflect an agreed price on a bulk purchase?
15 A. Again, I'm not aware of a circumstance identical to the
16 one that we dealt with with Barclays and Lehman.
17 Q. Is that a no? Is that a no to my question?
18 A. I think that's a no to your question.
19 Q. Okay. And the mechanism that was agreed to mark the books
20 to reflect the agreed price with Barclays was -- you'd never
21 seen anything like that before, either, correct?
22 A. When you say the agreed process to mark the positions,
23 what --
24 Q. No, sir. I didn't say that.
25 A. Could you repeat what you said, please?

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1 Q. Have you ever seen in your career prior to September of
2 2008 a plan to mark the books of a regulated broker-dealer to
3 reflect an agreement such as the one between Lehman and
4 Barclays. You ever seen that happen before?
5 A. I'm not aware of anything that was the same as the
6 situation between Barclays and Lehman.
7 Q. Okay.
8 A. I'm not sure preceding to this --
9 Q. So if that were described as book value --
10 A. -- prior --
11 Q. -- it would take a little more --
12 THE COURT: The witness is still trying --
13 MR. GAFFEY: I beg your pardon, Your Honor.
14 THE COURT: -- to complete his answer.
15 THE WITNESS: Sorry.
16 A. I think you were saying that there was sort of an
17 agreement to mark down the books of the broker-dealer. And I'm
18 not sure that that was what the agreement was. There was
19 certainly an agreement between the parties to value a block of
20 assets and that that was a process involving the Lehman traders
21 and the Barclays traders. They came up to some value that
22 reflected what, in their view, reflected the appropriate values
23 given the market environment and it was what Barclays was
24 willing to value those securities at. And that was different
25 to our book value as of the Friday. I'm not sure there was a

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1 plan to mark our books differently. What was -- what that
2 process generated was an agreement between the parties with
3 regard to what was the appropriate value for those securities
4 in that circumstance.
5 Q. And what that process generated, sir, was not something
6 that you, as CFO of the corporation, would have described
7 fairly as book value, is it?
8 A. It --
9 Q. Never seen -- sorry.
10 A. It generated a valuation of those securities which was
11 different from the value we had on our books as of the Friday.
12 Q. Different question, sir.
13 A. Okay.
14 Q. The process you've described, traders from the acquirer --
15 A. Right.
16 Q. -- traders from the seller meet and in a collaborative way
17 come up with an agreed value for a bulk purchase. You with me?
18 A. Yes.
19 Q. You've never seen that process determine the "book value"
20 of a broker-dealer, have you?
21 A. I haven't.
22 Q. You've never seen that type of process used and truthfully
23 described, or correctly described as book value at all, have
24 you?
25 A. Yeah. I'm not aware of a comparable situation to this.

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1 Q. So you've never seen it described as book value, have you?
2 A. I have not seen it described. I haven't seen anything
3 like it so I don't know it would be described.
4 Q. Well, it's not book value. It's an agreed value. Isn't
5 that right, Mr. Lowitt?
6 A. It's an agreed value -- but when you say book value, I
7 think -- there's a value which is the market value of the
8 securities. And then those are reflected on our books. So
9 when you say book value, what I'm understanding it to mean is
10 that it's the value of the securities, the market value of
11 those securities, on the books and records of the firm.
12 Q. And you would include within that definition of "book
13 value" a circumstance where the marks were achieved by a method
14 never followed before? Negotiations with a single purchaser on
15 a bulk purchase. You would -- as CFO of the corporation, who
16 certifies the truth of its financial statements, you would
17 describe that as book value, sir?
18 A. It's just a process whereby people are going to determine
19 what's the value of the securities that they -- those get
20 aggregated together. And that's different from the book value
21 of the Friday. That's what I understood it to mean and I don't
22 understand some of the distinctions that you're asking me to
23 draw with regard to book value and did -- not emerging from a
24 process.
25 Q. Before the bankruptcy, sir, when you had the office as CFO

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1 --
2 A. Yes.
3 Q. -- had someone come to you and said, Ian, we've decided to
4 value the assets a different way. We threw a bunch of bones on
5 the floor. We counted them up. We came up with a number. We
6 wrote it in the books. Would you have considered that to be
7 book value?
8 A. I wouldn't have regarded that as an appropriate way to
9 mark the books.
10 Q. Okay. Now, if someone had come to you and said, Ian,
11 we've come up with a different way to value the books. We're
12 negotiating with a single purchaser. We're going to reach a
13 negotiated price. We're going to write that down in the books.
14 Would you have thought that that was a proper book value?
15 A. Again, the process of establishing the accuracy of the
16 books and records is -- involves a lot of things, traders,
17 finance. I would not have thought that going to one outside
18 party and saying what do you think these assets are like would
19 be the normal process of how we would establish our books and
20 records for marking.
21 Q. How you establish book value.
22 A. How we establish market value on our books and records.
23 Q. Would you take a look in your book
24 A. Sure.
25 Q. -- at tab M-7?

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1 A. I have that, sir.
2 Q. You do? Okay. That's a document in evidence, sir,
3 Movants' Exhibit 7. And you'll see that it's an e-mail from
4 Martin Kelly to you written on the 16th of September, 2008 at
5 5:10 a.m. Have you had a chance to read that through?
6 (Pause)
7 Q. Well, let me read it into the record.
8 A. Sure.
9 Q. "Well, it took all night and lots of back and forth. But
10 the deal is done and ready for the board. Final price did not
11 change meaningfully, approximately 8.5 billion, all in,
12 economic loss versus our marks and 3.6 billion of RESI assets
13 left behind. Assume we can fund this after everything else
14 winds down, but, Paolo, you need to review this. And also, an
15 extra one billion of comp beyond our accrual and assumption of
16 all trade payables in LBI and LBHI. Took 7.45 for one billion
17 and several data centers for 400 million. Bart reviewed all of
18 it before final agreement. I'm going to try to get some sleep
19 and will be in mid-morning."
20 Do you recall receiving this e-mail from Mr. Kelly?
21 A. I don't recall receiving it but I obviously did 'cause I
22 responded to it.
23 Q. I'm sorry. I didn't hear you, sir.
24 A. I don't recall receiving the e-mail but I obviously did
25 'cause I responded to it.

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1 Q. Now, in the next e-mail in the chain, you respond to
2 Martin Kelly writing, "You are a hero. Well done. Ian."
3 Can you think of a reason you would be pronouncing Mr.
4 Kelly to be a hero on the announcement of these deal terms in
5 his e-mail?
6 A. I'm not sure it's because of the announcement of the deal
7 terms as much as just a reflection that Martin had been working
8 extremely through this period and had supported the process
9 very successfully. And I was thanking him for that and
10 recognizing him for his work.
11 Q. And one of the things Martin was doing when he was working
12 so hard was helping to estimate some of the numbers that were
13 going into the transaction, correct?
14 A. Yeah. One of the things that Martin was doing was
15 estimating some of the items.
16 Q. Okay. And one of the items that Martin was estimating was
17 the so-called cure payment. Is that right?
18 A. That's right.
19 Q. Which you understood to be an estimate of trade payables
20 that would be assumed by Barclays, correct?
21 A. Well, it's not -- I mean, cure payment was never a concept
22 that was known beforehand. So I don't think we really knew
23 what cure payment was. I think our understanding of cure
24 payment was that it was -- you know, the liabilities that -- or
25 a set of liabilities that Barclays would have to be taking on

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1 as they stepped into Lehman's shoes.
2 Q. And Mr. Kelly --
3 A. I'm not sure --
4 Q. Excuse me.
5 A. -- that it was exactly the same thing as trade payables.
6 But it obviously included those.
7 Q. And you understood that Mr. Kelly's task was to make the
8 best estimate of the amount that Barclays would likely have to
9 pay to step into the shoes and run the business by way of
10 assumed contracts.
11 A. Yes. That was one of the things I had asked Martin to do.
12 Q. And just for clarity, it might be that Barclays, when it
13 took over the business, already had a coffee vendor so it
14 didn't need to assume that contract, but might not have a
15 Bloomberg information service so it might need to assume that.
16 Is that the nature of what you understood it to be?
17 A. Well, I think we understood it to include not just vendor
18 payments for services. It would also have included -- and I
19 think that that's why the reference to trade payables. It
20 would have also included things around the trading activity of
21 the firm. So not just vendors but also trades.
22 Q. It was, in essence, sir, Mr. Kelly's task to make the best
23 estimate he could of what contracts Barclays would actually
24 need to run the business.
25 A. I don't know whether it was Mar -- whether that

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1 characterizes what Martin needed to do in order to estimate it.
2 Certainly, it included contracts but it also included an
3 assessment of items that arose out of the trading activity. So
4 I just want to draw -- mention that it's both of those things.
5 Q. And it was not a simple assessment of add up every
6 conceivable contract and find out what the total is. That
7 wasn't your understanding, was it?
8 A. No. It was a difficult exercise, in part, because the
9 information that is available for this is typically only done
10 at month end. And we needed to know what it was mid-month.
11 And that was exacerbating the challenge that Martin had.
12 Q. And the point was to make the best estimate possible of
13 what -- from amongst the potential contact -- contracts, what
14 contracts would actually be needed for Barclays to run the
15 business and put a best estimate number on that liability, yes?
16 A. Again, it partly is the contracts and it also includes the
17 trading activity. So, yes, around the contracts but, yes, also
18 around trading activity.
19 Q. Now, you agree, sir, that the difference between the
20 amount reflected on Lehman's books and the amount that Barclays
21 would pay was a negotiated figure, correct?
22 A. Well, I don't know if -- it was a -- it was a number that
23 emerged as a result of the activities of the various traders
24 determining what value was aggregated together. And then that
25 was, again my understanding, approved by the negotiators of the

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1 trade.
2 Q. Okay. And in the end, it was what was agreed to between
3 the parties in their negotiating sessions, correct?
4 A. Again, I wasn't a party to those negotiating sessions so I
5 don't know what that was. But certainly, my understanding was
6 that the traders were meeting with their counterparties and
7 agreeing what was the appropriate value for those securities
8 given the nature of the environment and the market they were
9 dealing with.
10 Q. And you understood that the difference was in the range of
11 five billion dollars between the amount shown on the books and
12 the agreed price, correct?
13 A. I understood that there was a difference between what was
14 on our books and what was the outcome of that process, yes.
15 And that that was -- my understanding was that that was around
16 five billion dollars. But I didn't know that. But I
17 understood that.
18 Q. Your recollection is that this difference, this delta, was
19 agreed as a raw number not as a percentage, correct?
20 A. When you say agreed as a raw number, I do recall that it
21 was a difference which was a number between what was on our
22 books and what emerged through this process.
23 Q. Well, we know there was a number, sir.
24 A. Yes.
25 Q. The question is did the number reflect -- did you have any

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1 knowledge whether the number reflected a CUSIP by CUSIP review
2 of the assets that were going to move?
3 A. I didn't -- I don't know what was going on in the sessions
4 between the traders from Barclays and the traders from Lehman.
5 Q. Now, sir, we talked a bit before about overnight from
6 Monday into Tuesday, you and others at Lehman were tracking
7 elements of the transaction and, in particular, the net assets
8 that would be moving over, isn't that right?
9 A. We were tracking what was emerging from the discussions
10 between the respective traders per asset class within -- for
11 Barclays and for Lehman.
12 Q. And on Monday night and Tuesday morning, you were tracking
13 elements of the transaction and, in particular, the sort of net
14 assets, the specific liabilities from a Lehman perspective that
15 you understood Barclays would be assuming, is that right?
16 A. Yes.
17 Q. Yes?
18 A. It's -- I assume you're reading from my deposition and so,
19 yes. Yes.
20 Q. I just want your actual answer, sir. Yes?
21 A. Yes.
22 Q. And let me ask you to take a look in your binder at tab
23 M-2 behind which is Movants' Exhibit 2.
24 A. I see that.
25 Q. Okay. And Exhibit M-2, sir -- and if it's easier, it's on

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1 the screen as well.
2 A. Okay. Thank you.
3 Q. Exhibit M-2 is a financial schedule and -- in which you
4 had participation in creating, is that right?
5 A. I was involved in some of the iterate of steps that I
6 think led up to this version.
7 Q. Okay.
8 A. I don't have a recollection of this one specifically, but
9 I certainly have recollection of being involved in earlier
10 versions of this.
11 Q. Okay. And that's what you mean when you say iterate --
12 iterative work on this? You were involved in -- you took a
13 look at and worked on earlier versions of this?
14 A. Yes.
15 Q. Okay. And when you say you haven't seen this particular
16 one, is that because it's the one that's initialed?
17 A. I've certainly seen it in the work around the deposition.
18 And you've shown it to me before.
19 Q. Other than when we've been together, sir.
20 A. I don't recall it at the time.
21 Q. Now, when you were involved in the iterative -- when you
22 were involved in the work process that led to this final, did
23 you make marks on drafts that were given to you?
24 A. I do have a recollection of a meeting that I had with Bart
25 where we worked on this. And I do have a recollection of

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1 making adjustments on the schedule.
2 Q. Okay. And would you take a look, sir, at the document
3 that's behind tab M-15? That's Movants' Exhibit 15 in
4 evidence.
5 (Pause)
6 Q. Actually, can we go back to Movants' 2 for just one
7 minute? Sorry for the confusion. But on Movants' Exhibit 2,
8 sir, with regard to the 72.65 billion number shown there --
9 A. Yes.
10 Q. -- you agree, do you not, that that number is after the
11 five billion dollar item we've been talking about when it
12 values the assets shown on that schedule?
13 A. I actually don't know that. What I -- this is the --
14 there were agreements between the parties. And there was an
15 original position on Lehman's books. And my understanding is
16 that that was five billion dollars lower but I don't know that
17 it was five billion dollars lower.
18 Q. Okay. Now, if you could go back to Exhibit M-15, sir.
19 A. Sure.
20 Q. Do you recognize Exhibit M-15?
21 A. I do.
22 Q. What is it, sir?
23 A. It's an interim work product where we were reflecting the
24 input of the negotiating teams on the schedule. And by "we", I
25 mean Bart and myself and others were meeting in the deal room

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1 and were mak -- I was noting down some numbers on the schedule.
2 Q. Okay. And I take it this is your handwriting on the
3 schedule?
4 A. Some of it is my handwriting. The numbers to the right of
5 the first adjustment column is handwriting I recognize as my
6 own. But the numbers to the left of that, the 40.3 and the 1
7 and the 8. - I'm not sure what that is -- 9, that's not my
8 handwriting. But the handwriting to the right of that is.
9 Q. And the word "markdown", is that you?
10 A. That looks like my handwriting so, yes, I would say that
11 is.
12 Q. And does this document not reflect that -- do you know if
13 you saw one or more than one of these schedules when you were
14 doing the iterative work product?
15 A. Again, I have a recollection of sitting with Bart and
16 working on one and I think it's this one. I was aware that
17 there were more iterations of it. I just can't be specific
18 about what was going on in those. But I certainly do have a
19 recollection of this.
20 Q. Okay. I note, sir, that the "Total Adjusted Assets"
21 column on Exhibit M-15 is at 77.4. You see that?
22 A. I do.
23 Q. And do you recall that the adjusted total assets column on
24 this schedule with the initials on it was 72.65? We can show
25 it to you.

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1 (Pause)
2 A. Yeah. I think that there are many different -- when you
3 look at the two schedules, there are actually items on the
4 Schedule 15 that aren't included on the Schedule 2. So, for
5 example, "Investments" and "Consolidated Subs" and "Other
6 Assets" are sort of zeroed out on Exhibit 2 in the mortgage
7 numbers reflective of understanding -- is obviously smaller.
8 Q. You're not saying there's different items shown on the
9 schedule marked as Exhibit M-15 than there are with M-2, are
10 you, sir?
11 A. The numbers in the column that sum to 77.4 have --
12 Q. On 15?
13 A. -- values in Exhibit -- I'm sorry. Which one? We're --
14 was Exhibit 15 which are not included -- which -- that are zero
15 in Exhibit 2 but not on Exhibit 15.
16 Q. Okay.
17 A. But the reason I just bring that out is because the
18 comparison between the two schedules need to reflect that, in
19 some cases, although the asset lines are the same, they zeroed
20 out in the subsequent schedule and not on the first.
21 Q. You don't see anything as between these two exhibits to
22 recount for the, roughly, five billion dollar difference
23 between the adjusted total assets in any of the items that are
24 not common to the two, do you, sir? It all derives from the
25 description of assets, isn't that right?

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1 A. Again, I think that what you would do is look at the items
2 that are on -- and, again, I think it's Exhibit 50, and you'd
3 say --
4 Q. Say that again, please, I can't -- sir, I'm sorry, you're
5 talking into your book.
6 A. Oh, I'm sorry.
7 Q. Can you talk into your microphone?
8 A. Yes, sure. I'm sorry.
9 I mean, I think that the way you would -- that I would
10 look at this is to look at what's in a particular row. And
11 that -- you know, the 1.2 I think -- again, don't know, think
12 represents the Friday marks. And then the 1 represents what's
13 emerged from the discussion with the traders. So if you want
14 to determined what -- where the five billion was you can go
15 through that exercise of comparing where the Friday marks were
16 to what was agreed on the schedule.
17 Q. And a more basic level for more lawyers, please, this
18 is -- these handwritten notes reflect the negotiations that are
19 going on as to how much will come off the marks, yes?
20 A. It reflects what is the valuation that the traders have
21 agreed to, and it shows how it's different from what were the
22 marks on the Friday.
23 Q. Okay.
24 A. Is my understanding of what that --
25 Q. Which part of this document, sir, tells us it's the marks

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1 on the Friday? You're looking up at the document, is there
2 something on there that tells you it's the marks as of the
3 Friday?
4 A. I don't know it's the marks of the Friday.
5 Q. Could you just be more precise?
6 A. It's my assumption of what those were. But, you're right,
7 I don't know that that's the Friday marks.
8 Q. Now, did there come a time, sir, when there were
9 discussions underway for Lehman and -- with the participation
10 of Barclays folks to mark their decisions further?
11 A. Again, what we wanted to -- we wanted to make sure that
12 within finance -- we wanted to ensure that whatever was agreed
13 to between the traders was a reflected at Lehman.
14 Q. And would that involve inviting Barclays' employees
15 participate in the marking of Lehman assets in the week before
16 the closing?
17 A. I think it would have involved making sure that the
18 Barclays' folks and the Lehman traders and what they're mutual
19 agreement was made available to the folks in finance.
20 Q. Who was keeping Lehman's books -- I'm asking this
21 question, of its chief financial officer, who was keeping
22 Lehman's books from the 15th through the 22nd; Lehman personnel
23 or Lehman and Barclays' personnel.
24 Q. And was Barclays invited to participate in marking Lehman
25 positions during that week; the 15th through the 22nd?

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1 A. I don't believe that -- I'm sure that Barclays' folks were
2 not involved in marking the Lehman books.
3 Q. Okay. Would you turn to Tab M-25 in your book. Are you
4 there, sir?
5 A. Yes, I am.
6 Q. Now, M-25 for identification is an e-mail that begins with
7 a chain from you, you see that at the bottom?
8 A. I do.
9 Q. Did you write this e-mail -- did you write the e-mails
10 that are attributed to you in this chain of e-mails?
11 A. Again, I don't recall the e-mails, but I’m sure that I do.
12 Q. And you wrote those in the course of your business at
13 Lehman, yes?
14 A. Yes.
15 Q. And you wrote them at or around the time that they're
16 dated?
17 A. I believe so.
18 MR. GAFFEY: Your Honor, I move into evidence Exhibit
19 M-25?
20 THE COURT: Is there any objection?
21 MR. HUME: No objection, Your Honor.
22 THE COURT: It's admitted.
23 (Movants' Exhibit 25, e-mail chain originating with Mr. Lowitt,
24 was hereby received into evidence as of this date.)
25 Q. Now, in the first e-mail in the chain, Mr. Lowitt, you are

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1 writing to Gerard Reilly, correct? One of your direct reports?
2 A. Yes. Gerard was the head of product control.
3 Q. Okay. And as your head of product control you're writing
4 to Gerry saying, "Are we set up to do the marking of the
5 positions, Ian." Do you see that?
6 A. I do.
7 Q. And then a few -- a little while later you write again to
8 Mr. Reilly and you're forwarding that e-mail -- are you with me
9 in the second one up the chain?
10 A. I do -- am.
11 Q. And you write, "What I meant was for BarCap to mark the
12 positions further, Ian." You see that?
13 A. (No audible response)
14 Q. Now, does that refresh your recollection as to whether
15 there was some plan in the middle of the week for BarCap
16 Barclays to participate in setting Lehman's marks?
17 A. I think that -- what I understand from this was we needed
18 to engage the Barclays' traders who had met with the Lehman
19 traders to make sure that what they had agreed to with regard
20 to the appropriate valuation of the assets was one that we
21 could reflect.
22 Q. Well, it would be necessary, sir, for Lehman to continue
23 to mark its books during the week of the 15th, correct?
24 A. Correct.
25 Q. All right. You weren't going to just leave them where

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1 they last were left, you were going to mark them each day, yes?
2 A. Yeah, we continued to operate.
3 Q. And during the week of the 15th Barclays hasn't acquired a
4 thing, has it?
5 A. No.
6 Q. And the court hasn't approved a transaction, has it?
7 A. No.
8 Q. And are you telling us, sir, that during that week a
9 system was in place to make sure Barclays was happy with the
10 marks that Lehman was setting as the week went along?
11 A. I'm not saying that.
12 Q. That the negotiations continued of setting up Lehman's
13 marks during the week?
14 A. I'm not aware of ongoing negotiations between Barclays and
15 Lehman traders, I'm sure they spoke with each other. But what
16 we wanted to do was make sure that we, in finance, or Gerry
17 knew -- had the understanding of what had emerged in those
18 discussions between Barclays and Lehman; traders.
19 Q. Well, sir, did you also want to as chief financial officer
20 make sure that the books of your broker/dealer were marked the
21 way they were always marked; that they were marked using the
22 normal procedures that you'd normally use?
23 A. I would have wanted to make sure that they were accurate.
24 Q. Different question, sir. Would you have wanted the books
25 to be marked using the systems and procedures that already were

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1 in place to mark Lehman's books?
2 A. Yes.
3 Q. And those systems and procedures, sir, did not contemplate
4 a bulk purchaser coming in and expressing its view or
5 participating in the marking process, did it?
6 A. Again, I wanted to make sure that the books and records
7 were accurate.
8 Q. That the books and records accurately reflected Lehman's
9 view of the marks?
10 A. That they accurately reflected the market value of the
11 securities that Lehman -- that were on Lehman's books.
12 Q. And before the Barclays' negotiations began Lehman's
13 method of determining the market value involved access top
14 public data, models, internal views of Lehman people, yes?
15 A. Yes.
16 Q. It was never a time when an outsider was invited in to say
17 well, what do you think our marks should be, was there?
18 A. Again, I -- there were -- I'm sure there were inputs from
19 external parties as people were asking for opinions. But the
20 point that you're making, which is Lehman people were
21 responsible for maintaining Lehman's books is correct.
22 Q. Okay. And there wasn't a position where you'd invite a
23 buyer of some assets, but, you know, prior to this, you don't
24 know of a time when a buyer -- a potential buyer of assets was
25 invited to participate in the marking process, do you?

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1 A. I'm not aware of that.
2 Q. And that's what you were writing to your subordinate, Mr.
3 Reilly, about on the 17th when you asked -- when you said,
4 "What I meant was for BarCap to mark the positions further,"
5 isn't it?
6 A. No, it's not what I understand this to mean. I mean, that
7 we needed to ensure that what -- when we were delivering assets
8 to Barclays to effect the transaction that had been agreed to
9 that we needed to be able to reflect what that agreement was
10 accurately. And that we needed to involve, both Lehman traders
11 and Barclays' traders in that activity. That's what I
12 understand this to have meant.
13 Q. Okay. So was that a departure from a normal course of
14 business way that Lehman prepared its books prior to the
15 negotiations with Barclays?
16 A. Again, it’s not -- this isn't necessarily to say that --
17 this isn't saying that the books would be marked by Barclays'
18 people, it's to say that we needed to engage before we could
19 deliver the securities at an agreed to price with the Barclays'
20 folks to understand what was the agreement and where things
21 were, given that things may have changed since the time that --
22 Q. So when you wrote you had a product control "what I mean
23 was for BarCap to mark the positions further," what you really
24 meant was Mr. Reilly should engage with them to see what their
25 opinion is? Is that your testimony?

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1 A. What I'm saying is that Mr. Reilly -- my suggestion
2 was -- what I'm saying is that Mr. Reilly -- we needed to
3 ensure that the BarCap traders and the Lehman traders were
4 involved as we were, ensuring that we could deliver the
5 securities to Barclays at the price that had been agreed in the
6 negotiations. That was my understanding.
7 Q. That's what you meant when you wrote, "What I meant was
8 for BarCap to mark the positions further?"
9 A. My understanding of it as I look at this chain of e-mails
10 here.
11 Q. Now, further up in that chain of e-mails on the 17th Mr.
12 Reilly responds to you writing, "Ian, I told business guys they
13 must get counterparts at BarCap comfortable tomorrow night by a
14 front in systems, we will not have time to do Friday. We're
15 going to send last nights assets and marks over so they can see
16 the mix and marks." And then you write back to Mr. Reilly, "I
17 went through all docs and did not see reference to the price
18 haircut. If we want conservative marks to reflect block
19 nature, we need to know how much and then can allocate to most
20 logical access," do you see that email that you wrote?
21 A. I didn't write that --
22 MR. HUME: Objection, Your Honor.
23 THE COURT: What's the problem with the question?
24 MR. GAFFEY: I'm sorry, I had misstated it, Your
25 Honor. I got it backwards, it's from Mr. Reilly to Mr. Lowitt.

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1 I'll restate the question, I apologize.
2 THE COURT: All right.
3 MR. GAFFEY: Let me have a small do-over on that so I
4 get the right author, Mr. Lowitt.
5 Q. Mr. Reilly writes to you, "I went through all docs and I
6 did not see reference to the price haircut. If we want
7 conservative marks to reflect block nature, we need to know how
8 much and then can allocate to most logical assets," do you see
9 that?
10 A. I do.
11 Q. What did you understand Mr. Reilly to be communicating to
12 you when he talked about going through all the docs and not
13 seeing a reference to the price haircut?
14 A. I mean, I understood Gerry had reviewed the contract and
15 the agreement, and that he didn't see a reference to a price
16 haircut.
17 Q. And are you suggesting that this creates a problem with
18 regard to setting conservative marks to reflect the block
19 nature, correct?
20 A. It suggests that he had an understanding of the
21 transaction that suggested that there was a block nature to it.
22 Q. Well, you write back to your subordinate, Mr. Reilly,
23 correct? You see that?
24 A. I do.
25 Q. And you write back to him on the -- it's actually the 17th

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1 of September because the time error's shown as Greenwich mean
2 time, is that right? Subtract four hours?
3 A. Again, it would have been my response to Gerry's mail.
4 Q. And in your response you say to Mr. Reilly, "Since not in
5 contract hard to see what to do, Ian." There's a typo, that's
6 what you meant to say "do" right?
7 A. I believe that's --
8 Q. "Since it's not in the contract it's hard to see what to
9 do, Ian." You are agreeing there, are you not, with Mr. Reilly
10 that the contract here does not provide for a block discount,
11 correct?
12 A. I don't think I'm saying that. I'm saying if it's not in
13 the contract, which I didn't -- hadn't read, then it's not
14 obvious what to do in response to the points that Gerry's
15 raised.
16 Q. Well, you don't say to Gerry, your subordinate, "What
17 block discount," right? You don't ask him what he's talking
18 about when he refers to a block discount?
19 A. It's true, I don't.
20 Q. Does that suggest to you that you knew what he was talking
21 about when he referred to a block discount, sir?
22 A. As I talked earlier, when I thought about the difference
23 between, you know, the Friday marks and what had been agreed,
24 I thought of that as a large bid office spread reflective of
25 volatility and -- it seemed logical to me, also, the size of

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1 the transaction. So my understanding, which wasn't knowledge,
2 was that it might have included a factor for the size. It
3 seemed logical to me, and it obviously seemed logical to Gerry.
4 Q. I'm sorry, does all of that mean you thought it might be a
5 block purchase?
6 A. No, I think it all means that I understood, and it seemed
7 logical to me, that the size of the transaction might have been
8 a factor as the traders were agreeing their pricing. I didn't
9 know that. And Gerry seems to have a similar understanding
10 that the size of the transaction could have been a factor in
11 how the traders determined what was the appropriate mark.
12 Q. And it's your testimony, sir, that when you -- or is it
13 your testimony, sir, that when you exchanged these e-mails with
14 Mr. Reilly you had not seen the contract?
16 Q. Is there a reason, sir, that when you wrote back to Mr.
17 Reilly, "since not in contract hard to see what to do," you
18 didn't write instead "I don't know I haven't read the
19 contract?"
20 A. I think it's actually confirming of my position that I
21 didn't say oh, I've read the contract and it is, or anything.
22 I'm taking Gerry's input as what I -- you know, as he's
23 describing it.
24 Q. So your testimony, sir, is the Court should understand the
25 phrase, "since not in contract hard to see what to do," to mean

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1 you hadn't read the contract; you hadn't seen it?
2 A. I would say it's consistent with my testimony that I
3 hadn't read the contract.
4 Q. Now, you mentioned a moment ago the asset purchase
5 agreement. Did you -- during the week of the 15th, that is in
6 the period from --
7 MR. GAFFEY: Can we put the calendar up, please.
8 Q. In the period from September 15th through September 22nd,
9 did you at any point see the asset purchase agreement?
10 A. I didn’t.
11 Q. Did you at any point ask to see it?
12 A. I don't recall asking to see it.
13 Q. Did you think your activities of CFO required you to see
14 it?
15 A. I obviously didn't because I didn't ask for it.
16 Q. Your overseeing the head of product control and the
17 treasurer and other senior executives in the work around the
18 transaction, where they're participating in valuing assets and
19 generating schedules, and you're writing notes on iterate
20 schedules to reflect these negotiations. Is it your testimony,
21 sir, that you didn't need to understand the asset purchase
22 agreement to read the asset purchase agreement in order to do
23 the work you were doing that week?
24 A. Well, most of what I was doing that week -- so when I
25 think about the work was, you know, ensuring that the company

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1 was continuing to operate. There were fantastic funding
2 challenges that we had that we needed to deal with, and that
3 was a real focus that I had. Including, you know, dealing with
4 Citibank and CLS, including dealing with the fed, including
5 insuring that we could, you know, establish the REPO. Those
6 were the things that I was focused on, that was what Bart had
7 me focused on. And the deal was being dealt with by people who
8 were closer to the deal and who were closer to that. And that
9 was how the set of requirements in terms of work that needed to
10 get done that week was laid out.
11 Q. Well, let's take a quick look, again, if you would, sir,
12 at Exhibit M-15 in your book.
13 A. Sure.
14 Q. I understand that there were these other things you were
15 doing, but when you were doing such things as writing
16 handwritten notes on the sheet, and the work "markdown" did you
17 think it was -- it would have been a good idea to look at the
18 asset purchase agreement and see if it had any provision for
19 this?
20 A. This was being done on -- before the agreement was
21 actually reached, so this was reflecting the inputs from the
22 various trading teams on schedule. So that was the time of
23 this particular schedule, it clearly predated -- it might -- my
24 understanding is it predated any documentation.
25 Q. Did you ever speak to any of the lawyers involved in

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1 drafting the asset purchase agreement?
2 A. I had conversations with Steve Berkenfeld, but it
3 wasn't -- but I don't recall them being specifically about the
4 asset purchase agreement.
5 Q. So you have no knowledge about what the attorneys who
6 participated in drafting the asset purchase agreement were told
7 about the deals to you?
8 A. No.
9 Q. And you never told any of the attorneys involved in
10 drafting the asset purchase agreement that the terms as you
11 understood them were to transfer assets to Barclays at a lower
12 price than they were on the books for?
13 A. I didn't communicate with the people who were drafting the
14 contract.
15 Q. Okay. And you understood that Barclays were going to
16 purchase the assets at a price they were willing to pay to
17 purchase a substantial block of assets at --
18 MR. GAFFEY: Withdrawn.
19 Q. As far as you know, sir, no one told the drafters of the
20 asset purchase agreement that a substantial block of assets was
21 going to Barclays for less than book value, correct?
22 A. I didn't talk to the drafters, I don't know what people
23 told them.
24 Q. Sir, I'd like to turn your attention to a certain
25 repurchase agreement between Lehman and Barclays that came into

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1 being during this week of the 15th, were you involved in that
2 at all?
3 A. I was.
4 Q. Now, your understanding, sir, is that by the time the deal
5 was approved by the Court on September 19th it was a completely
6 different deal than the deal that had been worked through on
7 Monday night into Tuesday morning, is that correct?
8 A. That was my understanding.
9 Q. I'm sorry, could you keep your voice up, sir?
10 A. Yeah. That was my understanding.
11 Q. And one of the reasons that the deal was completely
12 different was that on Wednesday, September 17th, the fed had
13 insisted that Barclays take the fed out of their repo position
14 with Lehman Brothers, correct?
15 A. Yes.
16 Q. And on Wednesday, September 17th, you attended a meeting
17 with the fed, together with people from Barclays regarding the
18 REPO, correct?
19 A. Correct.
20 Q. And there you discussed the logistics of unwinding the fed
21 REPO and putting into place a Barclays REPO, correct?
22 A. Correct. There were -- most of the discussion was driven
23 by the Barclays' folks, but I did participate in that meeting.
24 Q. And on Thursday the 18th you worked with other Lehman
25 employees to ensure that the collateral and cash movements that

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1 were taking place as expected in the new REPO took place,
2 correct?
3 A. Yeah. The people who were actually doing that were people
4 in treasury and operations. But I was being attentive to how
5 that was proceeding. So I was involved in that.
6 Q. And in the fed REPO you understood that JPMorgan Chase was
7 Lehman's collateral agent, right?
8 A. JPMorgan was Lehman's tri-party agent for the purposes
9 of -- for its repos
10 Q. And who was the tri-party agent for Barclays in the
11 Lehman/Barclays' REPO?
12 A. Bank of New York
13 Q. And, in essence, in the REPO with Barclays, Barclays
14 advanced forty-five billion to LBI, yes?
15 A. Again, I don't know the numbers precisely, but I do know
16 that there was -- the intention was that Barclays was going to
17 extend, you know, cash to LBI and it was going to receive
18 collateral in return. And it was going to mirror the terms and
19 the amounts that were in the fed REPO.
20 A. And was it your understanding, sir, that the terms of
21 the -- the terms into which Barclays stepped roughly were the
22 advance of forty-five billion in cash secured by approximately
23 fifty billion in collateral?
24 A. Yes, that's my recollection of what the numbers were.
25 Q. Now, in your view, ultimately the REPO became the deal,

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1 because Barclays kept the collateral that was in the REPO, is
2 that correct?
4 Q. Now, the standard REPO construct is one in which the
5 lender extends less cash in the amount of collateral, and the
6 difference, the haircut is to protect the lender, correct?
7 A. It protects the lender in the sense that if the lender has
8 to sell out of its positions in order to recover the cash on
9 the loan, which it's likely to do at extremely volatile
10 circumstances, there's enough collateral in the trades so that
11 they can recover the cash, and so they have a level of
12 protection.
13 Q. So in this particular REPO with Barclays advancing
14 approximately forty-five billion in cash and Lehman advancing
15 approximately fifty billion in collateral, if that becomes the
16 center of the deal, essentially, it's an exchange of fifty
17 billion in collateral for forty-five billion in cash, correct?
18 A. Barclays just steps into the REPO and the numbers you've
19 described, if that was actually the amount of collateral that
20 moved, and cash moved, that is how the -- would how it would
21 sit out.
22 Q. Now, let me ask you, sir, to turn to Exhibit M-29, sir.
23 A. I see that.
24 MR. GAFFEY: Do we have M-188?
25 (Pause)

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1 MR. GAFFEY: Your Honor, may I approach? I have a
2 copy of this that's already in evidence, with a different
3 number. Thank you.
4 THE COURT: Thanks.
5 Q. I've handed you, Mr. Lowitt, a document that's not in your
6 binder, it's Movant's Exhibit 188 in evidence. And you'll see
7 in it, in the e-mail chain at the bottom, it's an e-mail from
8 Gerry Reilly to you, Michael Gelband, Paolo Tonucci, and Martin
9 Kelly entitled open issues on the deal, do you see that?
10 Q. And would you take a look at the third numbered paragraph
11 in Mr. Reilly's e-mail to you, sir, it's at the bottom of the
12 page.
13 A. I see that.
14 Q. All right. And there Mr. Reilly writes, "Not clear on the
15 amount of block discount or how we make it happen. Defaulting
16 on REPO could be the best as discount could be taken from
17 haircut. If not that then we need to give business an
18 allocation of block discount so they could mark down the books
19 tonight. Does that create a problem as it could tip the broker
20 early, would we rather have that be in the sale price
21 tomorrow?" Do you see that?
22 A. I do.
23 Q. What did you understand Mr. Reilly to be talking about
24 when he talked about it not being clear on the amount of a
25 block discount or how you could make it happen, and suggesting

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1 defaulting on the REPO could be the best?
2 A. Well, I think the first part of that is going to the
3 discussion we just had about the prior e-mail with Gerry, which
4 involved his understanding that what had been agreed to between
5 the trading parties included some amount that reflected the
6 size of the transaction. Which is consistent with what I
7 described as something where I thought it was logical that the
8 size of the transaction could be a factor, but we didn't know.
9 So that's what I think the block discount refers to.
10 And then Gerry's also saying that the REPO could be a way
11 in which we could effect the transaction.
12 Q. In which you could effect the what, sir?
13 A. The transaction.
14 Q. Okay. And the way the REPO could be used to effect the
15 block discount would be to just let Barclays keep all the
16 collateral, so it winds up with collateral correlating to the
17 amount advanced, plus the haircut, plus the excess collateral,
18 yes?
19 A. Well, I don't think we knew that there was a block
20 discount in the trade. Gerry thought that there was one. And,
21 clearly, what was attractive about the REPO was the collateral
22 was already identified and in Barclays' hands. Part of the
23 difficulty we'd had through the course of the week was
24 identify -- was making sure that collateral that was LBI's
25 collateral was actually available and hadn't been seized by

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1 chase or one of the other counterparties. And so I think what
2 was attractive about the REPO was that it defined a set of
3 collateral that was already in Barclays' hands. And we didn't
4 have the issue of what collateral would we be able to deliver
5 into the transaction, because it might have been -- we thought
6 we had it, but it was actually seized by Chase or one of the
7 other folks who were taking collateral that week.
8 Q. Are you done with your answer?
9 A. That's it.
10 Q. I didn't want to interrupt you, sir.
11 Sir, the question is whether you understood Mr. Reilly's
12 e-mail to mean that by defaulting on the REPO the block
13 discount could be delivered by letting Barclays keep the
14 haircut. Is that what you understood Mr. Reilly's e-mail to
15 mean?
16 A. I understood that to mean what Gerry thought the trade was
17 that I’m not -- I'm not agreeing that defaulting on the REPO
18 necessarily reflects what was -- I don't know that there was a
19 block discount.
20 Q. Okay. Let's go up to your response to Mr. Reilly a few
21 hours later on the 18th. And you say, "Also need to figure out
22 how to shrink down matched book unless Gerry, that hasn't yet
23 been reflected in balance sheet we looked at yesterday. Gerry,
24 please sit with Cogs and Mike to figure out what we need to do,
25 and if balance sheet showing matched book at forty is right,"

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1 do you see that?
2 A. I do. Now, is there a reason you didn't write back to Mr.
3 Reilly saying, "Is there a block discount, and why are you
4 talking about defaulting on a REPO?"
5 A. I think we're -- I'm just adding additional issues that
6 need to get resolved during the course of that day. So Gerry's
7 asking for help in resolving issues. And resolving those
8 issues, you know, involved speaking with the traders and
9 understanding what was actually agreed between the
10 counterparts. And then in addition to that there were
11 additional issues that needed to get resolved which is around
12 the matched book.
13 Q. Sir, when Gerry Reilly writes to you about defaulting on a
14 REPO could be the best as the discount can be taken from the
15 haircut. And you write back, "Also need to figure out how to
16 shrink down the matched book." Does not suggest to you, sir,
17 that at the time you got Mr. Reilly's e-mail you fully
18 understood what he was talking about as to how defaulting on
19 the REPO could be the best way to deliver a block discount?
20 A. I can't recall exactly what I was thinking when I received
21 this. I mean, clearly I understood that defaulting in a REPO
22 was a way in which we could have effected the transaction. And
23 it was clear from other correspondence with Gerry that Gerry
24 had a view that there was a block discount, and that's not
25 inconsistent with my own sense that what had gone on between

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1 the traders might have reflected the size of the transaction.
2 Q. And you understood, sir -- I think we agreed that you
3 understood that by Friday, the 19th, the day of the sale
4 hearing the deal had changed completely, it was very, very
5 different from the deal that had come on Monday and Tuesday and
6 it was because of the REPO, yes?
7 A. The REPO was a very different -- yes, the REPO was the big
8 factor that was different in the transaction.
9 Q. And when Mr. Reilly wrote to you in his e-mail at the
10 bottom does that create a problem as it could tip the broker
11 early? Let me just back up one second. The e-mails are dated
12 the 18th of September, that's the Thursday, right, sir?
14 Q. Okay. And when Mr. Reilly writes, "If not that then we
15 need to give business and allocation of block discounts so they
16 can mark down the books tonight, does that create a problem as
17 it could tip the broker early? Would we rather have that be in
18 the sale price tomorrow." Did you understand that to be a
19 reference to the sale price that would be described to the
20 Court the next day on the 19th?
21 A. Again, I would just be guessing at what I would have
22 thought it would have been referring to.
23 Q. You were aware when you got this e-mail that there was as
24 sale hearing scheduled for the next day, yes? Is that right,
25 sir?

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1 A. I don't know if I knew that then. I certainly knew that
2 there was -- that we were -- but it's likely that I did.
3 Q. Now, I have a few more questions for you, sir, on the cure
4 amounts that we talked about this morning. You understood that
5 the transaction -- as part of the sale transaction Barclays was
6 going to assume liabilities for compensation and cure amounts,
7 just as a general matter you understood that, yes?
8 A. Yes.
9 Q. Okay. And you understood that Barclays was supposed to
10 assume two billion con compensation liabilities, is that right?
11 A. Yes.
12 Q. You were aware of that?
13 A. Yes.
14 Q. And you were that the two billion dollar compensation
15 figure was not derived from Lehman's accruals, it was a
16 negotiated number between Barclays and Lehman, is that correct?
18 Q. And you understood that the other category of assumed
19 liabilities would be contract cure amounts, correct?
20 A. I think we talked about it before, it --
21 Q. Right.
22 A. -- was contract as well as things associated with trading
23 activity.
24 Q. And one of the things we talked about before was that
25 Martin Kelly was tasked with coming up with the cure number,

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1 correct?
2 A. Correct.
3 Q. And Martin Kelly was working on it to develop the best
4 estimate of the payables that actually would be assumed by
6 A. He was coming up with a best estimate of what the cure
7 payment -- he was coming up with a best estimate of what the
8 cure payment needed to be.
9 Q. What it actually be -- the best estimate of what it
10 actually would be, yes?
11 A. Yes.
12 Q. Now, you did not know at the time, sir, did you, what
13 Barclays' intentions or plans were with regard to the amount it
14 actually planned to pay for the compensation element, is that
15 right?
16 A. I didn't know how Barclays was viewing the transaction,
17 no.
18 Q. And I take it then, sir, you did not have knowledge as to
19 what Barclays' calculations or plans were with respect to
20 estimating cure payments, is that correct?
21 A. Well, you said Barclays' plans with regard to estimating
22 cure payments. I don't think Barclays had any role in
23 estimating the cure payments.
24 Q. That may have been a bad question, let me try and put a
25 different question. Did you have any conversations with

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1 Barclays about what they thought they'd wind up spending for
2 assumed contracts?
3 A. I did not.
4 Q. Do you know if anyone at Lehman did?
5 A. I don't know if anybody at Lehman did.
6 Q. Did you ever talk to your subordinate, Mr. Kelly, about
7 whether he had such conversations with folks from Barclays?
8 A. I don't recall a conversation like that with Martin.
9 Q. During the week of September 15th, did you ever have
10 discussions with a man named Archie Cox?
11 A. I did have -- I met -- I saw Archie a few times and I may
12 well have had conversations with him.
13 Q. Do you know if Martin Kelly had conversations with Archie
14 Cox?
15 A. I don't know if he did or he didn't.
16 Q. Do you know if Martin Kelly had conversations with Archie
17 Cos about which contracts would be mission critical once
18 Barclays took over the company?
19 A. I'm not aware of that, but it may well have happened.
20 Q. Why do you say it may well have happened?
21 A. I don't know whether it did or didn't.
22 Q. Now, another reason that the deal on Friday was a
23 completely different deal than the deal that had been worked
24 through on Monday night into Tuesday morning, is the addition
25 of more value, that we talked about a bit before, that is the

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1 work done on Friday to find additional value, is that right?
2 A. That was included in the deal that was approved by the
3 Court, and it was different.
4 Q. Right. That's my point, sir, it was your understanding
5 when this value was added on Friday that that made it a
6 different deal than it had been the previous Tuesday?
7 A. Again, I didn't know what all the terms of the deal were,
8 but my understanding was that it was different.
9 Q. And in all of the -- well, in the work that you had done,
10 or your subordinates had done in the earlier part of the
11 week --
12 MR. GAFFEY: See the calendar, please.
13 Q. -- you know, on the 15th and the 16th around the asset
14 valuations, there had never been as far as you know a
15 discussion of 15(c)(3) assets, had there?
16 A. Again, I don't know what was discussed, but I was --
17 Q. Okay.
18 A. -- aware of 15(c)(3), but it may have been. I just don't
19 know.
20 Q. Were your instructions on Friday to go find assets that
21 had no previously been discussed with Barclays, so they could
22 be added?
23 A. No, the instruction that I received from Bart was to
24 identify additional sources of value, and that was what we went
25 through.

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1 Q. Okay. Now, as I understand -- well, let me ask you, sir,
2 your understanding by the end of the search for additional
3 assets you had -- you and your colleagues -- who else worked
4 with you on that?
5 A. It was really Paolo predominately, or we probably would
6 have also have -- Paolo probably would have reached out to
7 Alistair Blackwell, I don't know. I know Paolo was working on
8 it with him.
9 Q. And Paolo is Paolo Tonucci?
10 A. Correct. I'm sorry, Paolo Tonucci.
11 Q. And the work that you and Paolo were doing with the others
12 to find additional assets resulted in the addition of the
13 contents of the so-called unencumbered assets in a clearance
14 box, yes?
15 A. Yes. There was 15(c)(3) lockup and there was the
16 unencumbered assets.
17 Q. And what's your recollection of the respective totals of
18 the clearance box assets and the 15(c)(3) assets that were
19 added to the deal?
20 A. Again, I'm not sure whether they were added to the deal,
21 but certainly the amounts -- you know, my recollection was it
22 was about 1.9 billion dollars of unencumbered collateral. And
23 it was about a billion of value in the 15(c)(3) lockup.
24 Although I know those numbers changed a little.
25 Q. And you say, sir, you don't know if they were added to the

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1 deal, and I take your point. But you do know that these
2 additional assets did not overlap with the assets that were
3 already in the REPO, correct? They were in addition to that?
4 A. That was my understanding that they were not in the REPO.
5 Q. Now, we've spoke a bit before, sir, about how when you got
6 involved in this, this search for additional assets, you had a
7 conversation with Mr. Richie, do you recall that earlier today?
8 A. I do.
9 Q. And I think you told us that Mr. Richie told -- all you
10 recalled Mr. Richie telling you was that you needed to go find
11 these additional assets, correct?
12 A. I have a recollection of speaking with Mr. Richie about
13 the exercise, I don't recall what he spoke to me about. But I
14 do recall talking with him about the exercise, but I can't be
15 specific about what was -- what it included or --
16 Q. Okay. Did you ask Mr. Richie why he was talking to you
17 about this? Did you ask him what the purpose of this
18 assignment was?
19 A. Again, I don't recall asking why, I just recall -- and,
20 again, ask direction to engage in this exercise.
21 Q. Now, this project concerning additional assets did that --
22 did it end on Friday?
23 A. I think we identified the value on Friday and then through
24 the course of the weekend there was ongoing work to make sure
25 that we were in a position to deliver, you know, that value as

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1 an operational matter. And I think that's what we were talking
2 about in the context of the e-mail that you were drawing
3 attention to about toast.
4 Q. Now, did you have an understanding, sir, that the Court
5 would need -- did you have a view or an understanding that the
6 Court would need to approve the addition of these two elements
7 of property?
8 A. My understanding was that if it was an element of the
9 transaction then if the transaction was going to be approved by
10 the Court it needed to be -- the Court needed to know about it.
11 Q. Would you take a look at Exhibit M-203 in your binder,
12 please, sir?
13 A. I see that.
14 Q. Now, in this e-mail chain it begins at the bottom with an
15 e-mail from Ian Lowitt to Bart McDade, date 19 September, a
16 little after midnight, you see that?
17 A. I do.
18 Q. And you write, "Please send word when you are done, Ian."
19 And it's a fact, sir, that you wrote that because you knew Mr.
20 McDade was down at the sale hearing and it had been going on
21 late into the night, is that right?
22 A. I know that Bart came and, you know, presented to the
23 Court, and that there was a -- at hearing.
24 Q. And you get a response from Mr. McDade at about 1 in the
25 morning on the 20th saying, "The conclave is over we are part

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1 of BarCap subject to documenting." Do you see that?
2 A. I do.
3 Q. And then you write back to Mr. McDade early in the morning
4 of the 20th, the Saturday, "Did the Court accept the 15(c)(3)
5 lockup and an unencumbered box, make it through to BarCap? If
6 so, we need to make sure documentation is very tight so we can
7 deliver on it. You should have Weil lawyers work closely with
8 Paolo on it. Obviously critical we get this right. Congrats
9 again, Ian." Do you see that?
10 A. I do.
11 Q. Now, you were inquiring specifically of Mr. McDade whether
12 the Court had approved the 15(c)(3) lockup and the unencumbered
13 box, is that right, sir?
14 A. That is right.
15 Q. Did you follow-up on your inquiry to Mr. McDade to get an
16 answer to that question?
17 A. You see at the top, "Bart brought back, you know, can you
18 call me at home." And I'm sure I called Bart at home.
19 Q. Okay. And in that call with Bart at home did you get an
20 answer as to whether the Court accepted the 15(c)(3) lockup and
21 unencumbered box?
22 A. I don't have a recollection of that call, but we, you
23 know, continued to work through the weekend documenting those .
24 So I assume that what I'd hear was that it was part of the deal
25 and we needed to continue to do the work documenting what had

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1 been agreed to.
2 Q. Okay. And it was a sufficiently -- you understood it was
3 part of a deal that by Friday was very, very different than the
4 deal that had been done the previous Tuesday, yes?
5 A. Well, you keep saying very, very different. I understood
6 that the transaction had mutated to reflect sort of the REPO.
7 Q. Let me --
8 A. So I’m just reacting to the words very, very different.
9 Q. Let me withdraw the phrase. Here's the phrase we use, it
10 was a completely different deal. Would you agree it was a
11 completely different deal than the one that was agreed
12 overnight from Monday to Tuesday?
13 A. My understanding was it was a different deal. I don't
14 know what was agreed to Monday and Tuesday. But my
15 understanding was it was a very different deal, in large part
16 because of the REPO.
17 Q. Okay. And also because of the addition of the 15(c)(3)
18 and unencumbered assets in the clearance box, yes?
19 A. Yes, I was -- that was another factor which seemed -- in
20 fact, it was different to the --
21 Q. Say again, please?
22 A. Yes, that is something which also seemed as though it was
23 different to me.
24 Q. Okay. And you thought it was sufficiently different that
25 you wrote to Mr. McDade at 1 in the morning right after the

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1 sale hearing to ask him if the Court had approved those two
2 things, correct?
3 A. Well, I actually wrote it at 5:52 in the morning.
4 Q. I beg your pardon, all right, early the next morning?
5 A. We needed -- the reason that I think I had interest in
6 this is if it -- if these were not part of the transaction then
7 we didn't need to do additional work that weekend. But if it
8 was part of the transaction then we needed to continue to do
9 the work to make sure that it was documented and that we had
10 the schedules to support it.
11 Q. And your understanding about whether it was or was not
12 part of the transaction was it would be part of the transaction
13 if the Court accepted it, that's why you're writing to Mr.
14 McDade, right?
15 A. That was my understanding. I'm not an expert around, you
16 know, the legal side of that. But that was my understanding.
17 THE COURT: Mr. Gaffey, I'm just going to ask you a
18 scheduling question for lunch break. I can't tell if you're
19 approaching the end of your examination. And if that's true, I
20 think we should let you finish before we break for lunch. If
21 you have substantial additional time this might be a good time
22 to break, but it's entirely a function of how much more
23 questioning you have.
24 MR. GAFFEY: Thank you, Your Honor. It's not a
25 substantial amount of time. In fact, if I could just -- I just

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1 need to look through my book. I might actually be finished at
2 this point. I just want to make sure there's no documents I
3 haven't --
4 THE COURT: Fine.
5 MR. GAFFEY: -- covered in it. If we could do that
6 right now, I'll tell you that I'm done.
7 THE COURT: Take a look.
8 MR. GAFFEY: Thank you, Judge.
9 (Pause)
10 MR. GAFFEY: And check with the boss to see whether
11 I'm done.
12 (Pause)
13 MR. GAFFEY: Your Honor, I have no further questions.
14 THE COURT: Well, I broke in at the perfect time, it
15 seems. We'll break at this point and resume at 2 o'clock.
16 MR. GAFFEY: Thank you, Your Honor.
17 (Recess from 12:42 p.m. until 2:11 p.m.)
18 THE COURT: Be seated please. No further questioning
19 by the movants?
20 MR. MAGUIRE: No questions, Your Honor.
21 MS. TAGGART: No questions.
22 THE COURT: Okay. Cross-examine, please.
23 MR. HUME: Thank you, Judge Peck.
24 CROSS-EXAMINATION
25 BY MR. HUME:

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1 Q. Good afternoon, Mr. Lowitt.
2 A. Good afternoon.
3 Q. Hamish Hume from Boies Schiller & Flexner representing
4 Barclays. Mr. Lowitt, you were asked, obviously, many
5 questions this morning about your activities the week of
6 September 15, 2008. I'd just to go back to the beginning of
7 that week and ask you to describe for the Court what it was
8 that you were doing? What it was that was your principal focus
9 when you came to work on the morning of September 15th, 2008?
10 A. September 15th, which was the Monday, you know really we
11 wanted to ensure that we could continue with the orderly wind-
12 down of LBI. And the focus was on funding the firm. There was
13 a dispute or Citibank, you know, had indicated on that day that
14 they -- that they didn't want to operate as a -- as Lehman's
15 CLS agent, which meant that they wouldn't be clearing our FX
16 trades and settling our FX trades. And there was an enormous
17 efforts involving Dick Fuld, Steve Lessing speaking with their
18 counterparties at Citibank, Vic Krumkumbit (ph.), and others
19 about, you know, how this might be resolved. And that consumed
20 a big chunk of the day. So focusing on funding on the firm in
21 what was really tumultuous market environment exacerbated by
22 the pressure from Citibank was what consumed the majority of my
23 day on the Monday.
24 Q. The bankruptcy filing of LBHI had been sometime after
25 midnight in the early morning hours of September 15th, is that

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1 right?
2 A. That's right, I worked on the bankruptcy filing through
3 into the Monday morning.
4 Q. So you were up late working on that?
5 A. I was up late working on that.
6 Q. Right. And did that bankruptcy filing trigger then or
7 exacerbate these funding pressures that you were dealing with?
8 A. It clearly did. I mean, the market was in turmoil for a
9 lot of reasons. And clearly the Lehman bankruptcy was a big
10 factor in -- Monday was a tumultuous day in the markets.
11 Q. Did your work on trying to keep the funding for LBI going
12 continue throughout the week?
13 A. It did.
14 Q. Did it occupy a substantial portion of your time
15 throughout the week?
16 A. It did. It was a big focus for us and for me. And it was
17 one of the things that Bart was -- what was key that I
18 continued to focus on.
19 Q. Can you explain in a little bit more detail what you were
20 referring to with this Citibank threat regarding what you call
21 CLS?
22 A. Certainly. Lehman used Citibank as its agent bank to
23 settle its foreign exchange obligations. And Citibank
24 indicated through the course of Monday that it was not
25 comfortable operating in that capacity on behalf of Lehman

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1 Brothers. We believe, and that means, the management team at
2 Lehman Brothers believed that if that had -- if they had
3 stopped operating as our CLS agent then that would have sent
4 terrible signals into marketplace. It would have meant that
5 Lehman was not settling its trades. And, you know, I'm not a
6 legal expert, but that could have precipitated a bankruptcy,
7 you know, filing for LBI much, much earlier. And was clearly
8 not consistent with what the fed had indicated was the
9 objective, and what the board had talked about, which was an
10 orderly wind down of LBI.
11 Q. So when you talk about your efforts to ensure the funding
12 was in place for LBI was that part of an effort coordinated
13 with the fed to provide for an orderly wind down of LBI?
14 A. Well, I don't think the fed was involved in dealing with
15 the CLS. But, certainly, you know, the fed had indicated to us
16 on the Sunday evening that what they were interested in seeing
17 was the orderly wind down of LBI. And I think their efforts to
18 open up the PDCF or the funding window to firms -- securities
19 firms, including Lehman Brothers, was their effort to ensure
20 that the secured funding markets remain somewhat orderly
21 through that period. And that it could deal with the
22 bankruptcy filing for LBHI on the early morning of the Monday.
23 Q. And I think you said earlier this morning, but at the time
24 that this was all happening, could you remind the Court how
25 long had you been the chief financial officer of Lehman?

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1 A. I became the CFO of Lehman Brothers after, you know, Aaron
2 resigned from the seat. And I believe was June 12th, which
3 meant that I'd be in the CFO for about ninety days.
4 Q. I provided a binder of a very small number of exhibits,
5 can you --
6 MR. HUME: Judge Peck, yours is I think on the ledge
7 there. And the movants all have theirs.
8 Q. Mr. Lowitt, I'd like you to turn to Tab 4, which is
9 Movant's Trial Exhibit 589.
10 MR. HUME: Which we'll also put up on the screen.
11 Q. Movant's Trial Exhibit 589 begins with an e-mail chain
12 from you at the bottom to Michael Gelband, Alex Kirk and Eric
13 Felder, do you see that?
14 A. I do.
15 Q. And it's dated Wednesday, September 17th at 10:02 in the
16 evening, do you see that?
17 A. I do.
18 Q. And the subject heading is funding tomorrow. And it
19 states, "Today was very bad, with very large number of
20 surprises and increased requirement of seven or so billion."
21 Do you see that?
22 A. I do.
23 Q. And do you recall, generally, what you were referring to
24 there?
25 A. The funding of the firm on the Wednesday was -- had

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1 deteriorated in ways that we hadn't anticipated, including some
2 of our secured funding counterparties were unwinding some of
3 their term trades through a technicality with JPMorgan. And so
4 some of the cash that we anticipate as still being available to
5 us was not. And so through the course of the day we determined
6 that the amount of funding that we required was seven billion
7 dollars more than we had anticipated. And we actually were
8 only able, to my mind, to get through to Wednesday as a result
9 of Barclays agreeing to assist the firm with its funding, and
10 engaging in a REPO with the firm to support its funding.
11 Q. So when you say cannot get through tomorrow if not tighter
12 in the next line, are you saying there was a real threat that
13 there would not be funding for the firm to stay in operation on
14 Thursday, September 18th?
15 A. Yeah, I think what I was saying there is that the firm was
16 under enormous pressure. And if we continued to have surprises
17 and our funding position deteriorated that it might be that we
18 ended up in an overdraft position with JPMorgan, and that they
19 would refuse to continue to settle on our behalf.
20 Q. And the next sentence says, "Not sure what to suggest
21 other than someone makes ensuring great discipline the number
22 one priority." What did you mean by great discipline?
23 A. Well, the trading folks needed to be engaged in ensuring
24 that through their actions of that day they did all that they
25 could to help with the funding position of the firm.

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1 Q. You go on to say, "Let's huddle in the morning to see best
2 way forward," and then you state, "Also need to shrink matched
3 book, which as of yesterday was much larger than expected." Do
4 you see that?
5 A. I do.
6 Q. Can you explain to the Court what it means to shrink the
7 matched book, generally?
8 A. So the matched book was a book that was run by John
9 Coughlin's world -- in John Coughlin's world, which essentially
10 had us long treasuries and then also short treasuries. And
11 while they would be matched in size, they might be mismatched
12 with regard to the haircuts that were applied as they were
13 reversing in or repoing out the collateral. And, so, what we
14 were -- what I was talking about there was requiring the
15 business to shrink down, both the repos and the reverse repos,
16 that were apart of the matched book.
17 Q. And was Martin Kelly involved in that to some degree?
18 A. I would --
19 Q. You say here give Gerry -- Gerry and Martin have details,
20 is that Martin Kelly that you're referring to?
21 A. Yes, that would be Martin Kelly.
22 Q. And so this e-mail about funding tomorrow relates to
23 funding the firm, not to the Barclays' transaction?
24 A. Correct. That's funding Lehman Brothers through the
25 course of the Thursday.

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1 Q. I think you testified this morning that during the week of
2 September 15, 2008 you did not have an opportunity to review
3 the asset purchase agreement executed between Barclays and
4 Lehman, is that right?
5 A. That is right.
6 Q. And is it true that you don't remember being briefed by
7 any lawyer about the specific terms of that asset purchase
8 agreement?
10 Q. And is it true that you don't remember any of the
11 negotiators giving you a precise explanation of what was in
12 that document?
14 Q. You don't recall exactly what the definition was of
15 purchased assets in the APA, how it was precisely laid out?
16 A. I didn't read the APA, so I don't know how it was defined.
17 Q. And did you know precisely how consideration was defined
18 in Section 3.1 of the APA?
19 A. No, I didn't for the same reason.
20 Q. You were asked some questions this morning about the
21 contract you entered into with Barclays, your employment
22 contract. I'd just like to review those briefly. After you
23 learned that Barclays was negotiating a deal with Lehman after
24 the bankruptcy filing on September 15th, did you approach
25 anyone at Barclays to ask them for an employment contract?

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1 A. No, I didn't.
2 Q. Who approached you about the prospect of being employed
3 with Barclays?
4 A. But I was made aware of by Bart McDade.
5 Q. And what did he say to you, as best you recall?
6 A. As best I recall he said that I was one of eight people
7 that Barclays had identified as key individuals in the
8 transaction.
9 Q. And what was your understanding Mr. Lowitt of why it was
10 that you had been identified as a key person?
11 A. My understanding was that it was because of my experience
12 at Lehman with regard to -- and my knowledge of the processes,
13 and the systems, and the people, and the controls that I had as
14 a result of my CAO experience, both in Europe and the U.S. I'd
15 only be a CFO for ninety days so I didn't believe that it was
16 because of that. But I didn't know because it wasn't described
17 to me that way, but that was my understanding.
18 Q. But just so it's clear for the record, the acronyms -- you
19 held two positions at the time, correct?
21 Q. CFO was chief financial officer?
22 A. Correct.
23 Q. And CAO is what?
24 A. That's chief administrative officer. And in that capacity
25 I was responsible for systems and operations, expense

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1 management, with overseeing for finance and for risk.
2 Q. And how long had you been in that position?
3 A. I'd been the global co-CAO since I returned from London.
4 So that was the January of 2007. And then I'd been the CAO for
5 Europe for almost two years prior to that. So I'd had CAO --
6 chief administrative officer experience for over four years.
7 Q. So you had greater experience as CAO than CFO at that
8 time?
10 Q. After you were approached about employment I think you
11 testified this morning that you did not attempt to negotiate
12 the terms of your contract with Barclays, is that correct?
14 Q. And why not?
15 A. I understood that me agreeing to be a part of the
16 transaction and agreeing to that contract was an unnecessary
17 condition for the close and I didn't want to be an obstacle to
18 the transaction closing. But also we were so busy dealing with
19 the funding issues, the operational issues and getting the
20 transaction closed, that I didn't have a personal lawyer that I
21 would just naturally have shown that contract to. It just
22 didn't seem to me to make any sense to engaged and spend time
23 on that. I spoke with Anthony Collerton he indicated that the
24 terms seemed fair. And I read it, it seemed fair. I spoke with
25 Berkenfeld, he said it was fine. And so, you know, I signed it

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1 on the Thursday expecting a transaction to close shortly
2 thereafter, recognizing that I was an employee of Lehman
3 Brothers, until and if a transaction was consummated.
4 Q. Were you aware of whether any of the other top eight
5 people who'd been identified did attempt to negotiate the best
6 deals they could?
7 A. I didn't know that, but I had heard that people were.
8 Q. But you didn't?
9 A. I didn't, no.
10 Q. And, therefore, your contract was signed quite early in
11 the week because you didn't negotiate?
13 Q. You were asked a number of questions this morning about
14 financial schedule initialed by Steve Berkenfeld, Movant's
15 Exhibit 2.
16 MR. HUME: Let's put it up on the screen.
17 Q. You were also asked questions about another version of
18 this, that's Movant's Exhibit 15. I'm going to put them up,
19 both, side-by-side. And I have a couple of questions about
20 both of them. We're going to look at the asset side on both
21 schedules. First of all, do you know with any degree of
22 certainty, Mr. Lowitt, where precisely it is that the numbers
23 came from that went on whatever it was that the initial version
24 of the schedule was?
25 A. I don't know, you know, how those numbers arose.

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1 Q. So in terms of the original source of the original numbers
2 you can't say with any certainty where they came from?
3 A. I can't say with certainty.
4 Q. Now, when you made -- there's some handwritten edits on
5 Movant's Exhibit 15 that's your handwriting, you're testifying,
6 correct?
7 A. Yeah, the handwriting on the right side is my handwriting.
8 Q. And when you were making those handwritten edits were you
9 working at the request of Barclays or at the request of Bart
10 McDade?
11 A. At the request of Bart McDade.
12 Q. And when you did so, did you believe that you, personally,
13 were making decisions about the price that Barclays would pay
14 in this transaction?
15 A. No.
16 Q. Were you trying to keep track of what was happening?
17 A. I was -- my recollection is what we were engaged in was
18 keeping track of what was emerging from --
19 Q. Did you have any --
20 A. -- from us getting --
21 Q. Excuse me. Did you have any involvement in negotiating
22 the consideration that Barclays would pay in this transaction?
23 A. I was not a negotiator so, no.
24 Q. And do you know the relationship between this schedule and
25 the ultimate APA?

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1 A. I don't know.
2 Q. Now, the suggestion has been made that the handwritten
3 version, Movant's Exhibit 15, has a total adjusted asset number
4 of over seventy-seven billion. And the one that Steve
5 Berkenfeld initialed is seventy-two billion. And that shows a
6 five million dollar difference. I'd like to review with you to
7 see if that's accurate?
8 A. First, I'd like to look at the assets on the bottom half
9 of the asset schedule. You see that both agreements -- both
10 schedules reference collateralized short-term agreements of ten
11 billion, do you see that?
12 A. I do.
13 Q. So there's no change there?
14 A. Correct.
15 Q. Between the two. You see that there's two entries; other
16 assets and investment and consolidated subsidiaries of .4 and
17 1.9 respectfully on the one -- on Movant's Exhibit 15, do you
18 see that?
19 A. I do.
20 Q. And do you see that those two entries are both listed at
21 zero in Movant's Exhibit 2, initialed by Steve Berkenfeld?
22 A. I see that.
23 Q. Is it your understanding, therefore, that 2.3 billion is
24 removed from Movant's Exhibit 15 in the version signed by Steve
25 Berkenfeld in Movant's Exhibit 2?

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1 A. I do.
2 Q. And so there's a 2.3 billion dollar difference that
3 reflects the fact that assets are being removed from the
4 schedule, not marked down in value, is that accurate?
5 A. That's my understanding.
6 Q. Now, let's look at the top half of the assets and look at
7 mortgages on Movant's Exhibit 15. It's listed at 6.5 billion,
8 is that right?
9 A. It is.
10 Q. Now, do you recall, Mr. Lowitt, generally, that at some
11 point Barclays, decided they only wanted to take fifty percent
12 of the mortgage securities?
13 A. I do remember that.
14 Q. And on Movant's Exhibit 2, which is initialed final by
15 Steve Berkenfeld the mortgages are listed at 2.7, do you see
16 that?
17 A. I do.
18 Q. What is fifty percent of 6.5?
19 A. 3.25.
20 Q. Do you understand, therefore, that the difference -- that
21 there's a 3.25 dollar difference between Movant's Exhibit 15
22 and Movant's Exhibit 2 that reflects fifty percent of the
23 mortgage as being removed from the deal rather than a write-
24 down in the value of those securities.
25 A. That's my understanding.

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1 Q. And so between just those two changes we've reviewed, the
2 2.3 billion reflecting other assets and investment and
3 consolidated subsidiaries, and the 3.25 billion representing
4 the fifty percent of mortgages removed from the deal, that's
5 5.5 billion dollars difference between these two schedules that
6 reflects assets being removed from the deal not being written
7 down in value, do you agree with that?
8 A. That’s consistent with my understanding.
9 Q. Having reviewed that, do you believe Movant's Exhibit 15
10 demonstrates that there was a five billion dollar write-down in
11 the value of assets reflected on Movant's Exhibit 2?
12 A. Again?
13 Q. All I'm asking is do these two documents show a five
14 billion dollar write-down in value?
15 A. No, they don't, as I see it.
16 Q. Mr. Lowitt, if you wanted to know the values listed for
17 these assets on the books of Lehman Brothers on September 12th
18 or 15th or 16th, would it be better to ask someone what they
19 remember or to look at actual data from the Lehman systems?
20 A. It would seem to be better to look at the actual data.
21 Q. I'd like now to compare Movant's Exhibit 2 -- well,
22 actually, let me first pull up BCI Exhibit 46-A, which is at
23 Tab 1 of your binder.
24 MR. HUME: You can just pull up 46-A, just that
25 document.

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1 Q. This is an e-mail chain.
2 MR. HUME: And let me just say, Judge, we're going to
3 start trying to actually move our documents into evidence. We
4 have a list of unobjected ones, we'll deal with that later.
5 This document, Exhibit BCI 46 was on our list and I
6 believe was not objected to, subject to anything my colleagues
7 say. 46-A is identical to it, but the attached spreadsheet is
8 in a profile form that's easier to read, rather than landscape,
9 it's the only difference.
10 With that explanation do my colleagues have an
11 objection to using this document?
12 MR. MAGUIRE: I do, Your Honor. And the reason is
13 that this Exhibit 486-A (sic) does not anywhere show that Mr.
14 Lowitt was either a sender or a recipient of the e-mail. And
15 it purports on the third page of the exhibit to have an
16 attachment that is called file SEC inventory update
17 presentation.xls, and that attachment is not included in this
18 exhibit.
19 There is another document that is included in this
20 exhibit, but not that one. I would withdraw my objection and
21 have no objection to the examination proceeding, as long as I
22 would not be prevented, if necessary, in putting in that
23 document even though Mr. Lowitt is not competent to
24 authenticate it. But if I don't have the opportunity to do
25 that, and this document cannot be authenticated, I do have an

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1 objection to proceeding with the documents that does not
2 contain the authentic attachment to this e-mail stripe.
3 THE COURT: So this is an objection to the
4 authenticity of this version of the document, is that right?
5 MR. MAGUIRE: This -- there are multiple version of
6 this e-mail stripe, and as I understand it the original one has
7 this SEC presentation. That -- I don't know whether that ended
8 up at the end of this string. There is another attachment that
9 is included here. So what may have happened is the beginning
10 of the string had the SEC presentation, and somewhere in the
11 reply of forwarding a different attachment got put on it. And
12 all of that, frankly, is fine by me, I just don't want to be in
13 a position if I need to refer to the document that is
14 mentioned, this SEC presentation, I will not face a foundation
15 objection.
16 THE COURT: All right. So your principal objection
17 here relates to your own use of the SEC attachment with and
18 when you're ready to do that. And you don't have a problem
19 with that, Mr. Hume?
20 MR. HUME: No objection to that, no.
21 THE COURT: In that case, does your objection fade
22 away, Mr. Maguire?
23 MR. MAGUIRE: It fades away.
24 THE COURT: All right. Then the document's admitted
25 in whatever form we end up using it.

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1 (BCI's Exhibit 46-A, e-mail chain with spreadsheet, was hereby
2 received into evidence as of this date.)
3 MR. HUME: Thank you, Your Honor. And, again, I take
4 it the only difference between 46-A and 46 is this formatting
5 of the spreadsheet, should make it easier to review.
6 BY MR. HUME:
7 Q. I'd first like to look with you, Mr. Lowitt, at the e-mail
8 chain itself. If we go to the second page -- and I think my
9 colleague is correct that there is a long e-mail chain here
10 over two days, as Mr. Maguire says, with an original attachment
11 and then a later attachment, that's what it appears.
12 The bottom of the second page, Mr. Lowitt's an e-mail from
13 Kevin Horan to Gerard Reilly, copying Clement Bernard, do you
14 see that?
15 A. I do.
16 Q. And do you know who those individuals are?
17 A. Gerry Reilly was the head of product control for capital
18 markets. And Clement Bernard was the product controller for
19 the fixed income businesses. I don't know Kevin specifically
20 but I assume he worked for either -- probably for Clement.
21 Q. While we're on the subject, Mr. Lowitt, can you just
22 explain to the Court what it is that Gerry Reilly's job was as
23 head of product control?
24 A. As the head of product control Gerry ran the function
25 which was intended to -- which ensured that the books and

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1 records were accurate and, you know, was responsible for the
2 marking of the positions for the valuation at work that was
3 done, and the control that existed on the trade-in marks.
4 Q. Product control would undertake that control function with
5 the traders on the marking process?
6 A. Correct. They would represent finance in that process.
7 Q. The first e-mail says here is the summary level for now,
8 it goes on for an explanation and references this SEC inventory
9 update file. That's on Monday, September 15th at 2:08 p.m., do
10 you see that?
11 A. I do.
12 Q. Gerry Reilly responds that same afternoon, it says we need
13 current info, do you see that?
14 A. I do.
15 Q. Kevin Horan responds okay. And Gerry Reilly says, and
16 this is now Monday, September 15th at 2:45 p.m. And he says --
17 Mr. Reilly says, "As of Friday night?" And the response from
18 Michael McGarvey -- do you know who Michael McGarvey was? Was
19 he another person in finance?
20 A. He was.
21 Q. Response from Michael McGarvey is "We are talking to tech
22 now to get the equity data extracted for Friday night." Do you
23 see that?
24 A. I do.
25 Q. And this is Monday, September 15th at 2:50 p.m., do you

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1 see that?
2 A. I do.
3 Q. Why do you think they're looking for Friday night
4 information on Monday afternoon?
5 MR. GAFFEY: Objection, Your Honor.
6 MS. TAGGART: Objection, foundation.
7 MR. GAFFEY: Foundation, calls for speculation. Not
8 competent to testify.
9 THE COURT: The objection's in all of their glory are
10 well founded and you might want to reframe your question and
11 lay a foundation, or otherwise establish competence to answer
12 this kind of question.
13 Q. Mr. Lowitt, I'm simply asking for your understanding as
14 the chief financial officer reading e-mails sent by people
15 within the finance function who report up to you. I realize
16 you don't know what was in Michael McGarvey's mind at any given
17 time. How would you, as the CFO, read this and understand this
18 statement on Monday afternoon, September 15th that they're
19 looking for equity data extracted Friday night?
20 MR. GAFFEY: Same objection.
21 MS. TAGGART: Objection.
22 THE COURT: And same ruling. It calls for
23 speculation. There's also no foundation here.
24 MR. HUME: That's fine. We'll move on.
25 Q. The response, Mr. Lowitt, from Gerry Reilly, as he says,

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1 "What does that mean?" Reilly then says let's get FID current.
2 Is FID -- does that mean anything to you, Mr. Lowitt?
3 A. You mean, the fixed income division. So it would be the
4 fixed income -- the information associated with the products
5 and fixed income.
6 Q. So he says let's get fixed income division current, and
7 equities from August if we have to for now, do you see that?
8 A. I do.
9 Q. And above that McGarvey says, "Here's the LIB GAAP
10 summary," do you see that?
11 A. I do.
12 Q. Do you understand what the LBI GAAP summary means? Would
13 that mean something to you?
14 A. What it would mean to me is that it's the LBI balance
15 sheet in GAAP format.
16 Q. I'd like now to turn to the attachment that was connected
17 to this e-mail as produced and extracted from the Lehman
18 system. The attachment --
19 MR. HUME: If we could focus in on the title first,
20 top of it.
21 Q. Lehman Brothers Inc. balance sheet by GAAP at that type
22 9/12/2008, do you see that?
23 A. I do.
24 Q. Does that appear to you to be a summary of inventory
25 positions as of September 12, 2008?

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1 A. It seems to be -- again, I -- that.
2 Q. I'd like to compare this with Movant's Exhibit 2.
3 MR. HUME: If you can pull them both up on the screen.
4 Q. Could we look at the top half of Movant's Exhibit 2 under
5 assets. The total there is of 62.7 billion, do you see that?
6 A. I do.
7 Q. Now, can we look at the total on the LBI GAAP summary from
8 the 12th. Can we see -- the total is 65.1 billion, correct?
9 A. I see that, yes.
10 Q. And the categories on the GAAP summary -- let me begin at
11 the top, "Total CDs and other money market instruments," do you
12 see that?
13 A. I do.
14 Q. Would you have understood generally, Mr. Lowitt, or have
15 expected a commercial paper would be included in that category?
16 A. Yes, I would. Commercial paper would have been thought of
17 as a money market instrument.
18 Q. Okay. The next category is corporate obligations and
19 spot, do you see that?
20 A. I do.
21 Q. And is corporate obligations consistent with an
22 description of corporate deck?
23 A. It's consistent with it, yes.
24 MR. GAFFEY: Excuse me, Your Honor. I don't mean to
25 interrupt, but could we ask the witness to keep his voice up.

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1 I can't see him so I can only depend on the microphone and my
2 hearing.
3 THE WITNESS: I'll try to be close to the mic, sorry.
4 THE COURT: Yeah, I appreciate that comment as well.
5 I'm sitting next to him and I'm having a hard time hearing him.
6 So, Mr. Lowitt, for -- the benefit of everyone is weighing on
7 your very word, please speak up with every word.
8 Q. So we've established that this has total CDs and money
9 market commercial paper, corporate debt. And there's then an
10 entry for corporate stocks, do you see that?
11 A. I do.
12 Q. Then an entry for derivatives, do you see that?
13 A. Yes.
14 Q. And then an entry for government's and agency securities,
15 do you see that?
16 A. I do.
17 Q. And then an entry for mortgage and mortgage-backed
18 securities, do you see that?
19 A. I do.
20 Q. The entry for mortgage and mortgage backed securities is
21 6.5 billion, do you see that?
22 A. I do.
23 Q. Now, let's go back to Movant's Exhibit 2. And the
24 entry -- actually, can we go back to Movant's Exhibit 15. And
25 the entry for mortgage there is 6.5, do you see that?

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1 A. I do.
2 Q. All right. And we talked about how fifty percent of that
3 came out of the deal, correct?
4 A. Yes, we did.
5 Q. Now, if we go to Exhibit 486-A, if fifty percent of the
6 mortgages come out of this inventory that represents 3.25
7 billion, correct?
8 A. Correct.
9 Q. And if you subtract -- sorry to ask you to do a little
10 math. If you subtract 3.25 billion from 65.1 approximately
11 what would the total become on this summary form September
12 12th?
13 A. A little less than sixty-two billion dollars.
14 Q. Now, let's go back to Movant's Exhibit 2. And what's the
15 total on that summary?
16 A. I'm sorry, you're asking --
17 Q. The total for all of these categories is what?
18 A. 62.7.
19 Q. And that includes 700 million dollars of cash, correct?
20 A. Yes, it does.
21 Q. So if you took the 700 out of this you'd be left with
22 approximately sixty-two billion on Movant's Exhibit 2, correct?
23 A. Correct.
24 Q. Mr. Lowitt, having gone through this do you see anything
25 approaching a five billion dollar adjustment from the GAAP

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1 summary from September 12th to the asset values listed on
2 Movant's Exhibit 2?
3 A. That difference does not seem to be five billion dollars.
4 Q. Mr. Lowitt, I know in your deposition -- well, first let
5 me ask you, in your deposition were you shown this LBI GAAP
6 summary?
7 A. No, I was not.
8 Q. Were you shown any data from the actual Lehman systems?
9 The actual data for this other than these schedules. Do you
10 remember being shown any GFS data, or anything like that?
11 A. I don't recall being shown that, no.
12 Q. You testified in your deposition that your understanding,
13 which is the word you used, was that you believe that
14 approximately a five billion dollar difference existed between
15 the numbers on Movant's Exhibit 2 and the marks on the books.
16 You said that was your understanding of what probably was the
17 case. Having now had the opportunity to see this all I want to
18 ask, Mr. Lowitt, are you absolutely certain -- do you have any
19 certain knowledge that he values on that Berkenfeld schedule,
20 Movant's Exhibit 2, were five billion dollars less than the
21 books and records would show as of September 12th, or 15th or
22 16th?
23 A. I don't have knowledge of that, no.
24 Q. You were also shown a document, Mr. Lowitt, in the
25 movant's binder; Movant's Exhibit 188.

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1 A. So this is back in the big binder?
2 Q. It's back in the big binder, correct. Although, it's
3 actually not, it was the one that was given to you loose-leaf.
4 (Pause)
5 Q. Movant's Trial Exhibit 188 was given to you by Mr. Gaffey.
6 He initially asked you could you turn to Movant's Exhibit 29 in
7 the big binder. Can you turn to that as well. Movant's
8 Exhibit 29 and Movant's Exhibit 188 begins with the same e-
9 mail. And e-mail from Gerry Reilly to you, Michael Gelband,
10 Paolo Tonucci and Martin Kelly on September 18th, 6:03 in the
11 morning, do you see that?
12 A. I do.
13 Q. And that e-mail you were asked first to look at Movant's
14 29, and then he directed your attention to 188. 188 shows your
15 initial response which you're saying, "You also need to figure
16 out how to shrink down the matched book," do you see that?
17 A. I do.
18 Q. You were asked about that. And you were asked a number of
19 questions why didn't you respond to Gerry Reilly and say what
20 does he mean by a block discount, do you remember that?
21 A. I do.
22 Q. Remember being asked that?
23 A. I do.
24 Q. Mr. Gaffey didn't show you Movant's Trial Exhibit 29. And
25 Movant's Trial Exhibit 29 you respond, it's about a half hour

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1 later, to Gerry Reilly, and you say to him -- are you on
2 Movant's Exhibit 29?
3 A. I am.
4 Q. This is your response. "Gerry, please set up a meeting
5 first thing this morning to work through these issues with
6 Mike, Eric, and Amin (ph.)?
7 A. I don't know -- it probably should be Kyung.
8 Q. Kyung. Who are those people?
9 A. I would have been referring to Mike Gelband, Eric Felder
10 and Kyung Lee, who are the heads of trading for Lehman.
11 Q. They were traders?
12 A. Yes. They were traders and were involved in the
13 negotiations with Barclays.
14 Q. Were they more involved in this negotiation over asset
15 values than you were?
16 A. They were the ones who would have been in the meetings
17 with the trainers.
18 Q. You're telling Gerry Reilly that for this information,
19 whatever he's taking about, he needs to talk to them, right?
20 A. I'm saying that in order to resolve the issues that he's
21 identified he needs to set up a meeting with the traders who
22 would be in a position to help address those questions.
23 MR. HUME: Sorry, I'm not done with the big binder.
24 I'd like to go back again to Movant's Exhibit 25.
25 Q. Mr. Lowitt, you were asked on Movant's Exhibit 25, how you

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1 could possibly have written the words, since not in contract
2 hard to see what to do, if you hadn't read the contract,
3 remember being asked that?
4 A. I do.
5 Q. Gerry Reilly has written to you, "I went through all docs
6 and did not see reference to the price haircut," do you see
7 that?
8 A. I do.
9 Q. Did you understand Gerry Reilly to be telling you that he
10 had gone through the contract?
11 A. I understood that to mean that Gerry saying, you know, he
12 went through all docs and did not see reference. So, yes, he'd
13 gone through the contracts, it was my understanding.
14 Q. So you're responding to what he said when you say not in
15 the contract?
16 A. Correct.
17 Q. I'd now like to direct your attention to Exhibit 810,
18 which his Tab 3 of my little binder. This, again -- sorry to
19 jump around on you, is another version of the e-mail marked as
20 both Movant's 188 and Movant's 29.
21 A. Yes.
22 Q. About -- it begins with your question to Gerry Reilly,
23 "Are we set up to do the marking of the physicians," do you see
24 that?
25 A. I do.

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1 Q. That's the first e-mail in the chain of all three of these
2 e-mails; Movant's 29, Movant's 188 and BCI Exhibit 810, do you
3 see that, at the bottom?
4 A. I do.
5 Q. BCI Exhibit 810 you forward the e-mail -- let's first look
6 at Gerry Reilly's response to you. On September 17, 9:35 p.m.
7 he says "Ian, I told business guys they must get counterparts
8 at BarCap comfortable tomorrow night via front-end systems," do
9 you see that?
10 A. I do.
11 Q. It then says, "We will not have time to do Friday," do you
12 see that?
13 A. I do.
14 Q. And it says then, "We are going to send last night's
15 assets and marks over so they can see mix and marks," do you
16 see that?
17 A. I do.
18 Q. This is at 935 p.m., September 17th, written to you, do
19 you see that?
20 A. I do.
21 Q. Do you have an understanding why Gerry Reilly at 9:30 on
22 the evening of September 17th would be telling you that he's
23 going to send Barclays the assets and marks from the night
24 before?
25 MS. TAGGART: Objection, lack of foundation, calls for

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1 speculation.
2 THE COURT: I think that's a fair objection. Why
3 don't you see if you can get him to the point of actually being
4 competent to respond to that question.
5 Q. Mr. Lowitt, you testified earlier that the books and
6 records go through a batch process checked by finance, and the
7 activity of one day would be available to review toward the end
8 of business the next day or later, correct?
9 A. The books and records reflecting the activity of one day
10 would be available through the process the end of the following
11 day.
12 Q. Is this statement by Gerry Reilly consistent with your
13 testimony and understanding of that process?
14 A. I think it is consistent with what I described.
15 Q. You then forward this e-mail chain to Barton McDade and
16 Michael Gelband, you see that?
17 A. I do.
18 Q. And you ask them how do you want to control this process,
19 do you see that?
20 A. I do.
21 Q. When you sent this e-mail chain about marking the
22 positions further to Barton McDade were you trying to keep it a
23 secret?
24 A. Keep --
25 Q. When you sent it to Barton McDade, I assume you were not

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1 trying to keep it a secret from Bart McDade?
2 A. No. I mean, we wanted -- clearly it was something that
3 involved traders and I would want Bart and Mike to be aware of
4 any activity that involved the traders. And, certainly, Bart
5 needed to be involved of any effort that we were engaged with
6 as we were trying to ensure that the traders at Lehman and the
7 traders at Barclays were reflecting a common agreement. He
8 clearly -- he then -- Mike clearly needed to know about
9 anything like that. And if we were going to have meetings with
10 Barclays and Lehman folks then Mike and Bart had to establish a
11 way in which they were going to control that.
12 Q. Were you -- as a general matter, was the work you were
13 doing trying to implement the transaction that you understood
14 Bart McDade had negotiated?
15 A. Well, certainly that Bart was the lead negotiator, I think
16 there were others who were involved. We were trying to
17 implement the agreement that'd be negotiated on behalf of
18 Lehman. And we wanted to make sure that we were in a position
19 to implement what had been agreed between the parties.
20 Q. And as between you and Bart McDade, who had a better
21 understanding of the nature of the terms of the deal with
22 Barclays?
23 A. Bart had negotiated it. He understood the trade. I was
24 supporting it as we described this morning. I didn't know the
25 terms of the transaction.

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1 Q. And did this e-mail chain about marking the positions ever
2 actually lead to anything?
3 A. It didn't. The REPO that we talked about this morning
4 replaced the original way in which the transaction was
5 contemplated. And as a result there was no activity that I was
6 aware of that involved the BarCap traders and the Lehman
7 traders getting back together to try to reconcile what they'd
8 done in that earlier period on Monday and Tuesday.
9 Q. And just going back to what Gerry Reilly says about
10 sending over last night's marks, even though it's 9:30 p.m.,
11 Wednesday, September 17th, would the marks showing the market
12 activity from September 17th have been available for Gerry
13 Reilly to send to anyone at 9:35 p.m., Wednesday, September
14 17th?
15 A. The books and records for September 17th, would have in
16 the normal course, been available on September 18th.
17 Q. Mr. Lowitt, did you have at any time any role in trying to
18 value the assets in the REPO collateral that was delivered to
19 Barclays?
20 A. No, I didn't.
21 Q. You testified earlier that you understood the transaction
22 at the end of the week to be very different from the initial
23 transaction, do you recall that?
24 A. I do.
25 Q. Was one reason for that the inability of Lehman to deliver

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1 all of the inventory and assets that were contemplated at the
2 beginning of the week?
3 A. Yes. Much of the collateral that had been spoken about at
4 the beginning of the week was not unencumbered and we were not
5 in a position to deliver to Barclays.
6 Q. Can you explain to the Court what it means to say not
7 unencumbered?
8 A. It wasn't available for us to be able to deliver to
9 Barclays. An example of collateral that was owned by LBI but
10 had been, you know, seized by, say, JPMorgan would not have
11 been available to transfer to Barclays.
12 Q. One last question on the marking of the books. Some of
13 the assets in Lehman's inventory, as in any bank's inventory,
14 would have been more or less illiquid, wouldn’t have a trading
15 price available on the day, is that correct?
16 A. There would have been inventory that there wasn't publicly
17 available market data that we could use to mark those
18 positions, which would have required either some modeling or
19 some level of judgment, Level 2 -- what is called Level 2 --
20 what was called Level 2 and Level 3 assets.
21 Q. For a Level 2 or Level 3 asset like that for a single one,
22 if there was a bid received from another firm on Wall Street,
23 another trader said we would like to buy that asset and here's
24 our bid would that information be relevant to the traders at
25 Lehman in deciding how to mark that asset?

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1 A. Again, I'm not an expert in product control. It would
2 seem that it would be a factor that the traders would use or
3 could use.
4 Q. Right. I'd like to refer you back to the big binder to
5 Movant's Exhibit 56.
6 (Pause)
7 Q. You were shown this right at the beginning this morning at
8 Mr. Gaffey's examination. This has this phrase that you wrote
9 to Paolo Tonucci about, "You and I are toast." Do you recall
10 that?
11 A. I do.
12 Q. On Friday, September 19th, you and Mr. Tonucci had both
13 been involved in trying to identify additional sources of value
14 as you described, correct?
16 Q. And you knew that that was important to Bart McDade and to
17 the Barclays' transaction, correct?
18 A. Yes, I knew it was important.
19 Q. And is it fair to say that you were working at the
20 direction of Bart McDade?
21 A. I was working at the direction of Bart McDade.
22 Q. Is it fair to say Bart McDade was your boss?
23 A. I worked for Barton McDade, he was my boss.
24 Q. Is it fair to say that Bart McDade had worked very hard on
25 this transaction with Barclays?

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1 A. Yes.
2 Q. How did you think Barton McDade would act if you and your
3 colleagues in finance were unable to deliver concretely the
4 assets you had identified on Friday and that caused Barclays to
5 walk away?
6 A. I think he and many others would have been frustrated and
7 angry.
8 Q. With you?
9 A. With myself and Paolo and anybody else who had not been
10 able to operationalize what had been agreed to. As a result of
11 not being focused on it, if that was what had happened.
12 Q. Is that why you were exhorting Mr. Tonucci after this
13 difficult week, early Saturday morning to make sure this got
14 done?
15 A. Yes. I said that he needed to be close to it, and that it
16 was important that we were able to deliver on what we had
17 agreed to.
18 MR. HUME: Thanks, Mr. Lowitt, I have no more
19 questions.
20 THE COURT: Is there any redirect?
21 MR. GAFFEY: I do, Your Honor, yes.
22 REDIRECT EXAMINATION
23 BY MR. GAFFEY:
24 Q. Now, Mr. Lowitt, Mr. Hume just asked you if you're now
25 absolutely certain that there was a five billion dollar

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1 difference between the aggrieved price and the amount shown on
2 Schedule 2?
3 MR. HUME: Objection, Your Honor, that
4 mischaracterizes my question.
5 THE COURT: Well, why don't you rephrase the question.
6 I mean, I recall the back and forth. The record speaks for
7 itself. Why don't we just incorporate by reference whatever it
8 was that happened, then we don't have to get into --
9 MR. GAFFEY: I will, Your Honor.
10 THE COURT: -- the question of characterization.
12 Q. Mr. Lowitt, is there some question now as to whether you
13 are certain that there was a five billion dollar or so
14 difference between the agreed price with Barclays and the
15 amount shown on Lehman's books?
16 A. As I said before I had an understanding of the --
17 MR. GAFFEY: Speak up, please, sir.
18 THE WITNESS: Sorry.
19 A. As I said before, I had an understanding that that was the
20 case. I had said when we spoke this morning that I didn't know
21 that to be the case. So I never had certainty then, and I
22 don't have certainty now.
23 Q. And you don't have certainty now because of the documents
24 that Mr. Hume just took you through or is there some other
25 reason for that?

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1 A. It was always my understanding and that understanding was
2 based on information that was provided, or -- or conversations
3 that I had must have heard. So I didn't know it before because
4 I hadn't done a calculation to show that it was the case. But
5 I had understood it to be that. Now, seeing the numbers that
6 were presented it didn't -- I didn't see that there was a five
7 billion dollar number, but I hadn't done the work to determine
8 that previously it was an understanding based on information
9 that I had gained from others.
10 Q. And the others from whom you obtained the information at
11 the time included Martin Kelly, one of your director of
12 reporters, correct?
13 A. Again, I didn't have a precise recollection of where I
14 heard it, but certainly there was that e-mail from Martin.
15 Q. All right. And --
16 A. Which I -- which is probably a source of where I got the
17 five billion.
18 Q. And from Barton McDade, your boss?
19 A. Again, it's likely but I don't have a specific
20 recollection of a conversation with Bart about that.
21 Q. And you had a discussion about that with Gerry Reilly,
22 another one of your director reporters, correct?
23 A. Again, I don't have a recollection of talking with Gerry
24 about that amount. And it's interesting to me in the e-mails
25 that Gerry has where he talks about, you know, the discount he

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1 doesn't have a number associated with that.
2 Q. Well, when Gerry wrote to you about a block discount you
3 didn't ask him for a number either, did you, sir?
4 A. No, I didn't.
5 Q. And when he wrote to you about a block discount you didn't
6 express any curiosity about the existence of such, did you?
7 A. You've seen the responses that I gave to Jerry, and they
8 weren't talking specifically about the discount.
9 Q. You didn't ask him how much the discount he was talking
10 about was, correct, sir?
11 A. I did not.
12 Q. And that was because you a had an idea of how much that
13 discount was because of what you'd learned on the morning of
14 the 16th, correct?
15 A. I did have an understanding on the morning of -- I guess,
16 the Tuesday morning, if that was the 16th. I did have an
17 understanding that there was a difference between what was on
18 our books for Friday and what had been agreed to through this
19 whole process. And my understanding was that that difference
20 was five billion dollars.
21 Q. Okay. And this lack of certainty that you now have about
22 whether there was a five billion dollar difference, did it
23 happen before our eyes here in your testimony, or did it happen
24 sometime before that?
25 A. It -- I never had certainty about the five billion, I've

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1 always described it as an understanding that I had.
2 Q. You knew, sir, regardless of the amount that there was a
3 difference between the asset values that Barclays would be
4 paying and Lehman's books, correct? Let's leave to the side
5 for the moment whether it's five billion dollars, you knew they
6 weren't the same, yes?
7 A. I knew that there was a process that the traders had gone
8 through. And, yes, I knew that it was -- given what had
9 happened on -- I didn't know, but given what had happened on
10 the Monday, I would have been certain that it would be less
11 than the marks on the Friday.
12 Q. You were certain it would be less, is that what you said?
13 A. I would certainly have expected it to be less.
14 Q. Okay. It would be less by some amount, correct?
15 A. Correct.
16 Q. It could be less by a dollar, it could be less by five
17 billion dollars, correct?
18 A. Correct.
19 Q. And your direct reporter, Mr. Kelly, wrote you an e-mail
20 telling you it was five billion dollars, correct?
21 A. Well, he -- he sent an e-mail saying that -- I think it
22 was the economic cost was five billion and my interpretation of
23 that is that it was the difference that we've been talking
24 about here.
25 Q. Okay. I believe the phrase -- we can get the e-mail out

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1 if you like, sir, was five billion over all-in economic loss
2 versus or marks, that's what Mr. Kelly said to you, right?
3 A. I think so, yes.
4 Q. And that was a pretty big number, wasn't it?
5 A. Yes, it was.
6 Q. Especially for a company in the distress that Lehman was
7 in at the time, correct?
8 A. Well, it was a big number.
9 Q. And we haven't seen, sir, and perhaps you could tell us if
10 such exists, any documents or any indication that you, at the
11 time, said to Mr. Kelly, are we sure it's five billion dollars
12 that you questioned the number at all. Was there such
13 communication between you and Mr. Kelly after you got his e-
14 mail?
15 A. Again, I assume that what Martin was sending me was
16 accurate and that was the basis of my understanding.
17 Q. And with regard to the schedule that's marked as Movant's
18 2, which we'll put up on the screen for you, sir, you recall
19 being shown that very schedule at your deposition?
20 A. I do.
21 Q. Okay. And you remember it was marked as Exhibit 19, at
22 your deposition? You see it at the bottom of the document
23 there.
24 A. I don't recall it, but I’m sure you're right.
25 Q. Okay, so am I. Can you turn to page 81 of your

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1 deposition, please?
2 A. I'm on page 81.
3 Q. And directing your attention to line 18, and I’m going to
4 read through to page 82, line 13.
5 "Q. Were the amounts attributed to each of those asset
6 classes, the values shown on Lehman's books for each of those
7 classes?
8 "A. My understanding of what was reflected in these asset
9 values would be the amount that Barclays would be paying for
10 assets in those asset classes.
11 "Q. So that roughly five billion dollar number that we talked
12 about before, is recognized in this document, Exhibit 19,
13 correct?
14 "A. It is not recognized in this in the sense that these --
15 these asset numbers are post that, reflected Barclays were
16 willing to pay for seventy-two billion worth, 72.65 billion
17 worth of assets, which was less for reasons that we talked
18 about earlier, than the amount they were on Lehman's books for.
19 And the amount less is probably the five billion that you
20 referenced."
21 You see that?
22 A. I do.
23 Q. Was that a truthful answer when you gave it to me at your
24 deposition, sir?
25 A. It is. My understanding was that the difference between

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1 what was on Lehman's books as of the 12th and what emerged
2 through the process involving the traders, was five billion
3 dollars. And that was based in all likelihood on what I'd seen
4 from Mr. Kelly's e-mail.
5 Q. And in your deposition answer that I just read you, you
6 didn't mention as you just did again, sir, September 12th,
7 right?
8 A. That's true, it's not mentioned in my deposition.
9 Q. And with the care for precision that you take in your
10 testimony you took the same care at the time you answered this
11 question at your deposition, yes?
12 A. I was accurate in my deposition and I'm accurate now.
13 Q. Just a little more precise today?
14 A. I'm accurate in both my testimony and in that deposition.
15 Q. And at the time I asked you this question at your
16 deposition you didn't speak up and say I can't answer that
17 unless I see -- what was the phrase, GFS data? You didn't
18 mention anything like that, did you, sir?
19 A. No, it was my understanding then that that five billion
20 dollars that was referenced in Martin's e-mail was that
21 difference between what was on the books and what had emerged
22 from that process involving the traders.
23 Q. And when you were asked those questions at your deposition
24 and gave truthful testimony you thought the difference was
25 about five billion dollars, correct?

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2 Q. And your understanding also included your understanding
3 that Movant's Exhibit 2, the schedule, reflected that five
4 billion dollars, correct?
5 A. I'm sorry, when you say the schedule --
6 Q. I showed you Exhibit 19, Deposition Exhibit 19. And this
7 question was about that deposition exhibit, wasn't it, sir?
8 A. You're saying that my I understanding of what was on this
9 exhibit was post the activity involving the traders and their
10 understanding and them reaching an agreement with regard to
11 value?
12 A. I’m asking you, sir, if you understood that when I showed
13 you this exhibit at your deposition and I asked you if it
14 reflected the difference and you told me yes, that you
15 understood that then to be a truthful answer?
16 A. I don't understand -- I don't read what I said here as
17 saying that it included the five. If I can read it, it says
18 these are post that, they reflect what Barclays was willing to
19 pay for the seventy-two billion dollars of assets. So you
20 wouldn't -- so my point is just drawing attention to the fact
21 that what you see on Exhibit 19 doesn't -- is off whatever the
22 exercise was that created the difference that might have been
23 the five billion dollars -- that I thought was the five billion
24 dollars. You don't see the five billion dollars on this
25 schedule.

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1 Q. No, you certainly don't, sir. But the 72.65 is the five
2 billion less than it was on Lehman's books for, correct?
3 A. My understanding was what emerged from that process, and
4 if that was the seventy-two billion dollars, that would have --
5 my understanding was that was less than what was on Lehman's
6 books, and that difference was five billion.
7 Q. Now, Mr. Hume also asked you about whether there was any
8 Barclays' involvement in the marking of Lehman's books on the
9 17th. Do you recall that?
10 A. I do.
11 Q. And you told him that there was no?
12 A. That's right.
13 Q. Would you take a look at Exhibit 658 in your book, please?
14 (Pause)
15 Q. Are you at Exhibit 658, sir?
16 A. Yes, I am.
17 Q. And do you see that at the bottom of 658 there's an e-mail
18 from you to an Amin Kouchik (ph.). I may be murdering that
19 name, but do you see --
20 A. Kouchik Amin, yes.
21 Q. Okay. And Gerald Donini and Eric Felder?
22 A. Yes.
23 Q. And Charles Spiro. And that's an e-mail from you to them
24 concerning aspects of the activities in connection with the
25 deal on Friday the 19th, correct?

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1 A. Yes.
2 Q. Now, with respect to --
3 MR. GAFFEY: Your Honor, I move the admission of
4 Exhibit M-658.
5 THE COURT: Mr. Hume, any objection to that?
6 MR. HUME: 658? I'm sorry, Your Honor.
7 THE COURT: I saw you were engaged in conversation.
8 MR. HUME: Your Honor, no objection.
9 THE COURT: It's admitted.
10 MR. GAFFEY: Thank you.
11 Q. Now, in that e-mail, sir, you are writing -- what was
12 Kouchik Amin's job?
13 A. Kouchik was the head of -- the head rate trader. The head
14 of the rates business for Lehman Brothers.
15 Q. And what was Gerald Donini's job?
16 A. He was the head of the equity business.
17 Q. And what was Eric Felder's job?
18 A. He was the head of the credit businesses.
19 Q. And you copied on this e-mail Stephen King over at
21 A. That seems to be the case here, yes, I cc'd --
22 Q. And what was Stephen King's job at Barclays?
23 A. I don't know what his job was at Barclays. But I think he
24 was one of the traders.
25 Q. And about twenty to 11 on the morning of Friday, September

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1 19th, you write, "Barclays' teams are on their way over to meet
2 with us on our positions and marks, obviously critical, thanks,
3 Ian." Do you see that?
4 A. Yes.
5 Q. Does that e-mail make you want to reconsider your
6 testimony, sir, that Barclays was not involved in the marks?
7 In Lehman's marks on the 19th of September?
8 A. That's -- when I was talking about Barclays being involved
9 in the marks, it's the marking of our books and records. And I
10 wasn't aware that Barclays was involved in the marking of our
11 books and records.
12 Q. Well, you were aware on the morning of Friday, September
13 19th, that Barclays' teams were on their way over to meet with
14 you on your positions and marks, correct?
15 A. Yeah, they were talking about -- as I understand this,
16 and, again, I don't have a recollection of this e-mail, they
17 were there to talk about the positions that they wanted to
18 discuss and the marks that Lehman had. It doesn't follow from
19 that that they were going to change our positions or our marks.
20 It's just that there was going to be meetings on the 19th about
21 that.
22 Q. Okay, it certainly, sir, suggests to you that Barclays
23 wasn't totally out of the business in talking to Lehman about
24 the marks, whatever the purpose of the meeting was, right?

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1 Q. And this is the morning of the scramble to find additional
2 assets, yes?
3 A. That was the Friday, yes.
4 Q. And did this fact that Barclays' teams were on their way
5 over to meet with you on positions and marks bear any relation
6 to the project of finding additional value?
7 A. Again, I can't say whether there was a relationship
8 between them. It seems to me that they're different exercises.
9 Q. Now, Mr. Hume asked you to -- if the -- in essence, sir,
10 if the project of marking down the books actually went forward.
11 And I believe you said no, is that right?
12 A. That's right.
13 Q. And in your answer you referred to --
14 A. I’m sorry, when you said the marking down of the books,
15 that's involving Barclays' traders in any marking of Lehman
16 books and positions?
17 Q. Right.
18 A. That they were not involved.
19 Q. And in your answer you refer to the REPO as a reason for
20 that, yes? Actually, let me withdraw that, because I don't
21 want to be -- I don't want to mischaracterize what you said,
22 even accidentally.
23 The fact of the matter is, sir, by the 19th, when the REPO
24 was fully in place, the collateral at issue was being valued by
25 agents, by collateral agents and the repos, correct?

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1 A. I mean, the REPO collateral would have been valued by
2 JPMorgan for Lehman and for BONY for Barclays.
3 Q. During the time of the -- of the fed REPO, JPMorgan would
4 be the agent who valued it, yes?
5 A. Yes.
6 Q. And then during the time of the Lehman/Barclays' REPO Bank
7 of New York would be the agent which valued it, yes?
8 A. It's possible that the Barclays' traders would have
9 disputed some of those marks, I don't know. But, yes, they
10 would have been the source of the marks.
11 Q. The point is Lehman's not marking that collateral, the
12 agents are marking that collateral, yes?
13 A. Except to the extent that the agents are just taking
14 Lehman's marks with regard to that collateral.
15 Q. And that brings me to Exhibit BCI 810, Mr. Hume showed
16 you, it's Tab 3 in what he calls the little book.
17 (Pause)
18 Q. You'll have to look at the one in the book, sir, because I
19 don't have the ability to put that one on the screen.
20 A. I found it, sorry, it took me a little while.
21 Q. And in Exhibit 810 in the e-mail Gerry Reilly sends to you
22 he says, "Ian, I told business guys they must get counterparts
23 at BarCap comfortable tomorrow night via front-end systems. We
24 will not have time to do Friday. We are going to send last
25 night's assets and marks over so they can see mix and marks, do

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1 you see that?
2 A. I do.
3 Q. And does that suggest to you, sir, that this process you
4 described before where marks made overnight were available the
5 next business day was up and running by the 16th of September?
6 Because on the 17th there's a reference to last night's assets
7 and marks?
8 A. Yes, I think this is saying that, you know, late on
9 September 17th there's something which has the 16th marks
10 available.
11 Q. So marks were available on the 16th, yes?
12 A. This suggests that the marks for the 16th were available.
13 MR. GAFFEY: I have nothing further, Your Honor.
14 MR. HUME: Your Honor, is there any way I can ask less
15 than five minutes of additional questions?
16 THE COURT: Let's just hear what you have to do now.
17 Go ahead.
18 MR. HUME: Thank you.
19 THE COURT: You have additional questions in reference
20 to the examination by Mr. Gaffney?
21 MR. HUME: Yes.
22 THE COURT: No additional questions that you simply
23 forgot to ask before?
24 MR. HUME: No.
25 THE COURT: Okay.

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1 MR. HUME: There are those, too, but I'm not going to
2 ask those.
3 THE COURT: Okay, great.
4 RECROSS-EXAMINATION
5 BY MR. HUME:
6 Q. Mr. Lowitt, do you recall in your deposition whether Mr.
7 Gaffey was precise enough in his questions? Did he ever
8 precisely ask you whether the books and records available on
9 one day reflected the activity of that day or the previous day,
10 do you recall? Did he ever ask you that precise question?
11 A. Today?
12 Q. In your deposition?
13 A. In my deposition I don't recall him -- the distinction
14 between activity, marks and win available was not -- was not
15 drawn out in my deposition.
16 Q. And did he ever ask you in your deposition whether you
17 knew what the data showed as opposed to just what you recall
18 about this difference in valuation? Did he ask you --
19 A. I don't recall him asking me that.
20 Q. Did he ask you about the GFS data, as you recall?
21 A. I don't recall him asking me about GFS data?
22 Q. And he asked you whether your testimony was about the
23 difference in price and the values on the books? Just, again,
24 did you know how the asset purchase agreement defined
25 consideration?

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1 A. I did not.
2 MR. HUME: No more questions, thank you.
3 Your Honor, the only other thing is I didn't move into
4 evidence the exhibits. Should we do it later, I did show him a
5 few, and I think there was one objection to one. But could I
6 move into evidence BCI Exhibit 486-A, 810 and the other one's a
7 movant's trial exhibit?
8 THE COURT: Any objections?
9 MR. GAFFEY: No objection from the debtor, Your Honor.
10 THE COURT: Okay.
11 MR. HUME: And maybe later as housekeeping we can try
12 to move in all our unobjected exhibits, which are most of them,
13 just for ease of use, as they did.
14 THE COURT: Sometime before this week is over we'll do
15 that.
16 MR. HUME: Thank you.
17 THE COURT: The ones just identified are admitted.
18 (BCI's Exhibit 810, e-mail from Reilly to Lowitt, was hereby
19 received into evidence as of this date.)
20 (BCI's Exhibit 486-A was hereby received into evidence as of
21 this date.)
22 Mr. Lowitt, you're excused. Thank you for your time.
23 This turns out to be a traditional time for an
24 afternoon break. Let me just confirm that the next witness is
25 Mr. Clackson?

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1 MR. GAFFEY: Yes, Your Honor.
2 THE COURT: Fine. And I'm assuming that they'll be no
3 time for Mr. Hughes since we're starting on Mr. Clackson now?
4 MR. GAFFEY: I expect that's right, Your Honor. I
5 think Mr. Clackson will take the rest of the day. My partner,
6 Mr. Tambe, will be --
7 THE COURT: Is there any indication as to the likely
8 duration of that testimony? I’m only asking that question to
9 determine whether or not there's going to be a need to work
10 beyond 5:30 in order to finish with him?
11 MR. GAFFEY: There's a slight possibility, Your Honor,
12 that we might go a little bit passed 5:30. I expect the
13 examination to be about two hours.
14 THE COURT: Why don't we assume that we will take as
15 much time as is necessary to finish with Mr. Clackson, at least
16 through about 6:30 as the cutoff time.
17 MR. GAFFEY: I'm not sure if that includes cross.
18 MR. TAMBE: Good afternoon, Your Honor. Jay Tambe. I
19 expect my portion of the direct would be about two hours. I
20 don't know how long they'd have to take on cross, or any of the
21 co-defendants.
22 THE COURT: Well, le's see if we can -- without
23 damaging anybody's schedule, or sleep patterns, finish with Mr.
24 Clackson today. And if turns out to be burdensome we can bring
25 him back tomorrow morning.

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1 MR. TAMBE: Thank you.
2 MR. GAFFEY: Your Honor, while Mr. Tambe's questioning
3 Mr. Clackson, I ask to be excused from Court briefly, and I
4 didn't want you to think I was just leaving, if that's all
5 right.
6 THE COURT: Mr. Boise left and didn't say a word. So
7 you should feel free to leave anytime that you choose. It's
8 fine.
10 THE COURT: As long as it's not in the middle of an
11 examination. We're taking a recess until a quarter of the
12 hour.
13 (Recess from 3:27 p.m. until 3:50 p.m.)
14 THE COURT: Be seated, please. Mr. Boise is back.
15 MR. BOISE: Thank you, Your Honor. I didn't want to
16 interrupt the witness.
17 THE COURT: It was very courteous.
18 MR. TAMBE: Good afternoon, Your Honor.
19 THE COURT: Good afternoon.
20 MR. TAMBE: Jay Tambe from Jones Day, counsel for
21 Lehman Brothers Holdings Inc.
22 The movants will next call Patrick Clackson.
23 THE COURT: Mr. Clackson, please raise your right
24 hand.
25 (Witness duly sworn)

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1 THE COURT: Be seated, please.
2 MR. TAMBE: Your Honor, may I approach the witness and
3 the bench?
4 THE COURT: Yes.
5 MR. TAMBE: Thank you.
6 Good afternoon, Mr. Clackson.
7 THE WITNESS: Good afternoon.
8 DIRECT EXAMINATION
9 BY MR. TAMBE:
10 Q. We met last summer, didn't we?
11 A. Yes, we did.
12 Q. In London at your deposition.
13 A. Yes, we did.
14 Q. And we haven't spoken with each other since, we haven't
15 met each other since?
16 A. No, we haven't.
17 Q. When we last met you were the chief financial officer of
18 Barclays Capital, correct?
20 Q. And is that still our position?
21 A. And that's still my position.
22 Q. How long have you held that position?
23 A. I think about five years.
24 Q. And you've been with Barclays for something like ten
25 years, is that right?

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1 A. I think it's eleven years now.
2 Q. Okay. In terms of the chain of command at Barclays and
3 where you fit into the chain of command, who do you directly
4 report to?
5 A. I directly report to Rich Richie, who's the chief
6 operating officer. And he reports to Bob Diamond.
7 Q. Okay. Chris Lucas, where does Mr. Chris Lucas fit into
8 the chain of command?
9 A. Yes. I also have reporting line to Chris Lucas who's a
10 group finance director.
11 Q. And when you say group finance director, that is he's the
12 finance director for Barclays PLC, is that correct?
13 A. That is correct, yes.
14 Q. And Mr. Diamond is the CEO of Barclays Capital, is that
15 correct?
16 A. Yes, that's correct.
17 Q. And John Varley is the chairman of, I should say, the
18 group, Barclays PLC?
19 A. He's the chief executive of Barclays PLC.
20 Q. The chief executive of Barclays PLC. Let's take a couple
21 of moments just to set some names. You are the first legacy
22 Barclays witness to testify at this hearing. And we've heard
23 from some former Lehman employees from the Barclays' side.
24 You've now described your position, you told us about Mr.
25 Diamond, Mr. Barley, there's a few other names I want to go

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1 through. David Petrie, is that a name you're familiar with?
2 A. Yeah, vaguely. I think he works for Barclays.
3 Q. Okay. Are you familiar with a name Gerard LaRocca?
4 A. Yes, I am. He's the chief operating officer of Barclays
5 in the U.S.
6 Q. Barclays in the U.S.?
7 A. In the U.S.
8 Q. Are you familiar with Chris Lucas and his involvement in
9 the Barclays/Lehman transaction, was he involved in the
10 Barclays/Lehman transaction?
11 A. Yes, as the CFO of Barclays PLC Chris Lucas was involve
12 din the transaction and involved in briefing the board and the
13 market about the transaction as well.
14 Q. And in terms of your overall responsibilities with respect
15 to the transaction -- the Barclays/Lehman transaction, could
16 you briefly describe what your responsibilities were? Let's
17 first begin with before the closing of the transaction, and
18 then describe briefly after the closing of the transaction?
19 A. Yes. Before the closing of the transaction I was
20 responsible really, together with Rich Richie for ensuring the
21 structure of the transaction was something which worked for
22 Barclays, so making sure that the transaction we did was
23 effective for Barclays.
24 Subsequent to the closing I was responsible for the
25 accounting around that transaction to ensure we correctly

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1 accounted for the transaction.
2 Q. In terms of the period before the closing of the
3 transaction, when you say it was effective for Barclays, from
4 what perspective were you determining whether or not it would
5 be effective for Barclays?
6 A. That was an incredibly difficult time. And the market was
7 in freefall. We were very -- we thought we had a great
8 business opportunity, but at the same time we were very nervous
9 about the markets and the market conditions. And I wanted to
10 make sure that we weren't taking on undue risks for Barclays in
11 the transaction.
12 Q. And so as you were involved in the transaction during that
13 week before the closing, so the 15th of September through the
14 22nd of September. You took special care to make sure that in
15 all of your analyses you were being conservative and careful,
16 correct?
17 A. Yeah, to make sure that we did whatever we could in terms
18 of understanding the risks we were taking on, the value of the
19 assets we were taking on, the extent of the liabilities we were
20 taking on.
21 Q. And you would agree with me, I suppose, that information
22 was coming at you in a flood, correct?
23 A. Sheets amount of information which was changing minute-by-
24 minute, and a lot of confusion as we were trying to piece
25 together something which was a piece. We were buying a piece

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1 of the whole Lehmans. And it wasn't a piece which previously
2 had been externally reported. So there wasn't simple or clear
3 designation of the piece we were buying. So there were a lot
4 of people scrambling around trying to pull the data together so
5 we could understand what we were talking about buying.
6 Q. And broadly speaking, in terms of the information that was
7 coming to you, you were getting information thrown out you
8 about various types of assets, correct?
10 Q. And various types of liabilities, correct?
12 Q. And the transaction as you understood it during that week
13 of the 15th to the 22nd would involve, both an assumption of
14 assets -- a purchase of assets as well as an assumption of
15 liabilities, correct? It was both.
16 A. Yes.
17 Q. Okay. And as you sought to be accurate in your reporting
18 and your analysis of the effectiveness of the transaction from
19 Barclays' perspective you were being conservative when you
20 evaluated all of this new information coming at you, correct?
21 A. Yes. I obviously was being conservative to ensure we had
22 money to risk. But, also, there were various things we had to
23 do in terms of how the transaction worked. So we were taking
24 things on at their market value, for example. And so, you
25 know, we had to work out what the market value was. We had to

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1 ensure that we were taking on assets that which we could work
2 out in the market value, and we could agree the market value.
3 Q. Well, I'm sure you'll agree with me that there was
4 uncertainty at least with respect to some of the assets as to
5 what the market value was and how that was changing through the
6 week, correct?
7 A. Yes, that's correct. The markets were moving.
8 Q. You were not trying to be a cowboy this week, correct?
9 A. Yes, sir.
10 Q. This was a week to be sober and conservative, not a
11 cowboy?
12 A. Yeah, it was -- we had to be very clear about what we were
13 doing to understand what we were taking on, and to understand
14 how those things were valued.
15 Q. And if you were going to err, you were going to err at
16 least on the asset side towards having a lower value than a
17 higher value, correct?
18 A. As I said earlier, in terms of taking on the assets there
19 was a process which happened, a negotiation process, which I
20 wasn't directly involved in. It was an arm's length process in
21 terms of Barclays and Lehmans negotiating what the fair market
22 value of the assets were. As you say that was a very difficult
23 thing in some cases to work out. But from what I saw it was
24 actually an arm's length, and a sometimes acrimonious. It was
25 quite a difficult process agreeing well what is a value of this

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1 asset, and what is a fair value. So it wasn't something where
2 we were able just to say, you know, the value is X because that
3 was a low value. There was an arm's length process from what I
4 saw.
5 Q. I guess what you're describing is some kind of a process
6 by which traders from Barclays and traders from Lehmans sat
7 across from each other and tried to come up with valuations,
8 correct?
9 A. Yes, that’s precisely what I mean.
10 Q. Is it fair to say that Barclays wasn't bidding up the
11 value of those assets during that week?
12 A. We were trying to get to the market value of those assets,
13 yes. So --
14 Q. That generally meant bidding down those prices, correct,
15 sir?
16 A. At that -- yes, that's correct. At that time the markets
17 were in freefall, and so we were trying to get the assets to
18 what the current market was. And, you're right, the markets
19 had all been collapsing at that time.
20 Q. And you believed, and Barclays believed, did it not, that
21 Lehman's marks for asset classes were too high, correct?
22 A. Yes. The traders, as you said, the traders were doing
23 that exercise.
24 Q. One of the traders that was doing that exercise was Mr.
25 Keegan, right?

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1 A. Yes, that's correct. He's one of them.
2 Q. And Stephen King was another one of them?
4 Q. Okay. And, Mr. Stephen King, what's his position at
5 Barclays?
6 A. So Stephen King actually is no longer at Barclays. But at
7 the time Stephen King was a trader who ran some of the
8 securitized products books -- sort of the asset backed
9 securities.
10 Q. And when you describe the asset back securities group is
11 that referred to within Barclays as the PMTG group?
12 A. Yes, it was described. I'm not sure -- back at that point
13 it was. But for quite a long period it was described as PMTG
14 group which he ran.
15 Q. And in terms of the assets that Mr. King was responsible
16 for trading you mentioned securitized products and asset backed
17 products, correct?
18 A. That’ correct.
19 Q. And those were the very products that were highly volatile
20 during that particular week, correct?
21 A. Actually, all the markets were highly volatile during that
22 week. But, you're right, those electric products were probably
23 falling in value more rapidly than the other markets.
24 Q. And during the course of that week could you briefly
25 describe what was Mr. King's role; what was he doing, what did

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1 you observe him doing?
2 A. So the traders -- and as you said, it wasn't just Mr.
3 King. There were various different traders who were
4 specialists in different areas. And what they were doing is
5 they were negotiating with their Lehman counterparts; the
6 trades on the Lehman side, so the people who spent the time in
7 the markets who understood what the markets were doing, the
8 current market price was. And I saw Stephen negotiating with
9 his counterparts who were the traders of those products at
10 Lehman.
11 Q. And from time-to-time during the week would Mr. King, and
12 other traders like Mr. King, report back to you what the
13 results were with of the negotiations with Lehman?
14 A. Yes. So some of those traders were coming back to Mr.
15 Richie and myself with the updates, and where they were in
16 their work. There were areas where they were getting to
17 agreement, there were some areas where they had disagreement.
18 I remember at some point when they got to disagreement we, on
19 both sides, said we're not going to come to agreement, so we
20 took some transactions out of the deal because we said we
21 couldn't agree on the price.
22 Q. Let's just roll down into that a little bit more. So
23 there were assets or types or particular securities where if
24 you couldn't agree with Lehman a price those were excluded from
25 the transaction, correct?

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1 A. Yeah, that's what I remember during that first time.
2 Q. So that's just roughly on the asset side. Let's just talk
3 a little bit about the liability side, and we'll go back over
4 all of this in more detail.
5 So on the asset side, generally you're being conservative,
6 you're not being a cowboy, and Barclays' view, if any, is to
7 put the values down as opposed to pushing them up, correct?
8 A. Just to confirm what I said, it -- we were trying to get
9 to a fair market value. So the market value reflecting that
10 market at that place in time.
11 Q. And on the liability side, similarly, you had to make an
12 educated guess, an assessment of what the assume liabilities
13 were going to be, correct?
14 A. Yes. So --
15 Q. That was part of what you were charged with that week, was
16 assessing the levels, the types of assumed liabilities that
17 Barclays would be taken on?
19 Q. And in assessing the magnitude of those assumed
20 liabilities you weren't trying to low ball of those liabilities
21 for your management, were you, sir?
22 A. Going back a little bit -- just stepping back a little
23 bit --
24 Q. Well, can you answer my question. You weren't trying to
25 lowball those liabilities, were you, sir?

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1 A. No, I wasn't trying to low ball.
2 Q. If anything, again, on the liability side you would be
3 conservative, not a cowboy and try and state them at their
4 maximum potential exposure from your perspective, is that
5 right?
6 A. I think what I try, what account is what the liability
7 was. So what was the extent of that liability in terms of the
8 business we were taking on. So in the same way I was trying to
9 find the market value, the assets, I was trying to find what
10 the reliabilities we were taking on; so what the accurate
11 values of them were.
12 Q. So you were trying to be accurate?
13 A. I did want to ensure I was missing out any liabilities. I
14 needed to make sure I was complete in having all those
15 liabilities.
16 Q. You were complete and you were accurate, correct?
17 A. Yes.
18 Q. That's what you were trying to do?
19 A. Yes.
20 Q. And on the liability side, there's a couple of assume
21 liabilities we've talked about in this case. The bonus
22 liability, that's something you're familiar with, correct?
24 Q. And one of the things you were trying to assess during
25 that week, prior to the closing, was what is the magnitude for

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1 the assumed liability for bonus, correct?
2 A. Yes, correct.
3 Q. And you were trying to be accurate about that, correct?
4 A. Yes, we were trying to work out -- and what we had, just
5 to explain, is we had estimates of what the compensation
6 liabilities were, so bonus and other compensation liabilities.
7 And we had to work out in terms of that total estimate of what
8 we think we spend on compensation, how we were going to account
9 for that spend of compensation. So some of that compensation
10 we were taking on we thought on day one of the transaction we
11 were going to have to under UK accounting account for a
12 liability, some of that compensation liability we were taking
13 on we thought we would be charging in our profit and loss
14 account in the period after we did the transaction. So we were
15 trying to work out the extent of the liability and then we were
16 also trying to work out how much of that we should account for
17 in Day one, and how much would flow through our numbers later
18 on. So we were trying to do both for those exercises.
19 Q. And your sources of information for trying to find out
20 what the magnitude of that liability was going to be, where
21 were you getting that information from, sir?
22 A. So our human resources department; our HR department was
23 working together with Lehman human resources department trying
24 to go through and get some data on the 10,000 employees we were
25 taking on. So we had some understanding of what the total

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1 compensation liabilities we were taking on were.
2 Q. There was another component to assumed liabilities and it
3 had to do with the cure, you're familiar with that, correct?
4 A. Yes, I'm quite familiar.
5 Q. And with respect to the assume liabilities relating to
6 cure, once again, you were trying to come up with an accurate
7 estimate of what those liabilities would be, correct?
8 A. Yes.
9 Q. Right?
11 Q. And you were looking at sources of information to try and
12 get a handle on what that number was going to be and what the
13 exposure of Barclays was going to be for assumed liabilities
14 for cure, correct?
15 A. Yes. We were trying to work out what --
16 Q. And, again, that was information you got Barclay -- from
17 within Barclays and Barclay from Lehmans, correct?
18 THE COURT: If I can just intrude for one second, and
19 I hate to do this. There are times when I think the witness is
20 still in the process of completing an answer and the next
21 question comes so quickly that he's cut off. So just if you
22 could pause a little bit between the time that he finishes his
23 answer and you ask your question. I just have a feeling the
24 witness has some more to stay that you're cutting off.
25 MR. TAMBE: Absolutely, Your Honor.

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1 Q. Do you want to add to your last answer, Mr. Clackson?
2 A. Sorry, could you --
3 Q. I think the last question had to do with assumed
4 liabilities for cure. And you were trying to be accurate with
5 respect of the magnitude of those liabilities, correct?
6 A. Yes. So we were taking on some cure liabilities. And
7 just so you understand, cure was a concept which I hadn't
8 understood before I got involved in this transaction. I think
9 it -- well, I understand now it's a bankruptcy term, it wasn't
10 something which I understood before. Obviously, in taking on
11 this business and these activities we were taking on a lot of
12 employees and liabilities related to those employees. We were
13 also taking on a whole business which we were trying to run,
14 and a pretty significant business with thousands of different
15 suppliers. And in terms of cure, the understanding I got was
16 that was taking what liability -- of course, there were
17 thousands of suppliers, what contracts do we need to continue
18 to run and support the business.
19 Q. So part of the analysis on the cure side was trying to
20 identify and quantify which of the contracts Barclays would be
21 prepared to assume and then pay the related cure costs for, if
22 there were any cure costs involved with those particular
23 contracts, correct?
24 A. Yes. So there was an exercise in terms which of the
25 contracts we were going to take on, which we were going to

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1 assume. In terms of -- you had a question --
2 Q. I think you answered my question.
3 A. -- I'm going to come to your question in a minute.
4 Q. You've answered my question.
5 A. We had feedback from the Barclays and the Lehman side. In
6 terms of cure payment on the Barclays side, we didn't have any
7 data before the data closing. So the only data we had on cure
8 was some estimates which we got from Lehmans. I think
9 initially we an estimate of 2.25 billion. And I think on
10 Friday we had a later estimate of 1.5 billion. In terms of the
11 work on the Barclays' side, it's different from the
12 compensation. We didn’t get any details to begin that work
13 till over that weekend, which is when I think we started to get
14 some of the supplier detail.
15 Q. And when you say over the weekend, you're talking about
16 the weekend off the 20th, the 21st, is that right?
17 A. Yeah, that's correct.
18 Q. Am I understanding your testimony correctly, then, sir,
19 that with respect to cure you got information provided to you
20 from Lehman which was initially in the 2.25 range, then in the
21 1.5 range. But that you had no way of testing that information
22 until the weekend, sir?
23 A. Yes.
24 Q. Is that what you're telling us?
25 A. Yes.

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1 Q. And you had no independent view of what the nature of the
2 cure liability was going to be prior to Saturday the 20th, is
3 that your testimony, sir?
4 A. Yeah.
5 Q. Let's back up a little bit. You came in to New York to
6 help out what eventually became the Barclays/Lehman transaction
7 on the Friday the 12th, is that right?
8 A. Yes.
9 MR. TAMBE: If you could just put the calendar up,
10 please.
11 Q. So we've just put a calendar up for your reference.
12 Friday the 12th is when you are asked to come to New York
13 to assist others at Barclays with doing some due diligence and
14 some work involving a potential Lehman transaction, correct?
15 A. That's correct. I think I arrived in New York slightly
16 after midnight on the Friday.
17 Q. That's right. And that's what you told me here in your
18 deposition, and you went right to work?
19 A. Yeah.
20 Q. And you worked, I assumed, through the weekend, on a
21 potential transaction with Lehman, correct?
23 Q. And that transaction that you were working on over that
24 weekend, the weekend of the 13th and the 14th, that transaction
25 never was consummated, correct?

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2 Q. Thereafter beginning on Monday the 15th you were reengaged
3 to work on a different Lehman/Barclays transaction, is that
4 correct?
6 Q. And you would agree with me that this transaction that you
7 began your involvement with starting on the 15th was a
8 dramatically different transaction than the one you were
9 considering or contemplating on the weekend of the 13th or
10 14th, correct?
12 Q. Now, during your deposition we use a terminology, and if
13 you don't mind I want to use that again. We refer to Lehman 1,
14 Lehman 2, and Lehman 3 is that okay?
15 A. Yes.
16 Q. And when I refer to Lehman 1 I'm talking about the
17 proposed deal, contemplated deal on the 13th and the 14th.
18 Okay?
19 A. Yes.
20 Q. And when I talk about Lehman 2 I’m talking about the deal
21 that was negotiated on the 15th and 16th and presented to the
22 Court initially on the 17th, okay?
23 A. Yeah.
24 Q. And when I talk about Lehman 3 I'm talking about the deal
25 that actually transacted, the transaction that actually closed,

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1 do you understand that?
2 A. And I think what I said in my deposition was the
3 distinction between Lehman 2 and Lehman 3 I wasn't -- you know,
4 it was one of the transaction, it did change in some ways over
5 the period, which I'm -- it was the same transaction at first,
6 I think I said that in my disposition.
7 Q. Would you agree with me, sir, there was a significant
8 change in your view from the transaction that was contemplated
9 early on in the week to the transaction that was actually
10 closed at the end of the week?
11 A. There were some -- definitely some changes. And some of
12 the assets which we had to acquire early on in the week, what
13 we found out later on in the week was that Lehman weren't in a
14 position, they didn't have title to those assets, because those
15 assets were held by counterparties where they repo'd out the
16 assets to counterparties. And, therefore, Lehman weren't able
17 to transfer the title of those assets to us. So the word
18 changes in terms of the assets and the liabilities, which we
19 expected to get earlier in the week, and the ones which we
20 finally got at the end of the week.
21 Q. Well, it was beyond that, wasn't it, sir? At the
22 beginning of the week you were talking about an assumption of
23 long and short positions, correct, sir?
25 Q. And at the end of the week, as you've described with, what

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1 you ended up with was purchasing; stepping into the shoes of
2 the fed, a whole set of long positions, there were no more
3 short positions, correct?
4 A. Yes, that's true. So the risk of the transaction was
5 quite significantly different, because initially we had some
6 offsetting long and short positions. Later in the week we just
7 had -- almost entirely had long positions in a time when the
8 markets were incredibly volatile.
9 Q. And it's your understanding -- it has been previously
10 expressed by you that not only did those aspects of the
11 transaction change, but you ended up with assets that you had
12 had no opportunity to do due diligence on, is that your
13 testimony, sir?
14 A. Yes. So of the final assets we got, so we discussed the
15 trade process whereby the traders tried to get to fair market
16 value on the exercise on Monday night. Some of the final
17 assets which came through on the REPO weren't assets with the
18 traders had seen before when they had been doing that fair
19 market value exercise. So there were assets which we'd never
20 seen before, and so we hadn't -- we didn't have to do any due
21 diligence to work out what the fair market value of them was?
22 Q. And so by the end of the week, the end of the week of the
23 15th you had already returned to London, is that correct?
24 A. Yes. So during that weekend I -- I can't recall if it was
25 Tuesday night or Wednesday night, I flew back to London.

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1 Q. So you were no longer on premises from Wednesday onward,
2 is that right?
3 A. That's correct, yes.
4 Q. But you were remaining involved through e-mails and other
5 communications with your folks here in New York?
7 Q. You don't have any firsthand knowledge, do you, what the
8 traders did when they learned that some of the assets that they
9 were getting pursuant to the fed/REPO were different and ones
10 that they had not done due diligence on, you don't know what
11 steps they took in response to that, do you, sir?
12 A. As you said I was involved in some of the cores and some
13 of the discussions. You know, I think we tried to work out
14 what we were now getting and what the value of those assets we
15 were now receiving was, and that's what the traders were trying
16 to do.
17 Q. Are you aware of any other steps taken by the traders when
18 they found out that they were receiving assets that they had
19 not done due diligence on?
20 A. I can't recall any of them.
21 Q. All right. Let's go back to the beginning of the week.
22 So the transaction that you had contemplated, the 13th and
23 14th, Lehman 1, does not get consummated. You proceed on the
24 15th with what's going to be a different transaction, and you
25 would agree with me, would you not, that that was a much more

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1 limited, a smaller transaction than the one that was
2 contemplated over the weekend, correct?
3 A. Yes.
4 Q. The assets that were now the subject of discussion were a
5 subset of assets that had been considered over the weekend,
6 correct.
7 A. Yes.
8 Q. If you could describe your personal involvement the night
9 of the 15th into the morning of the 16th, what were you focused
10 on during that period of time in connection with the Lehman 2
11 transaction?
12 A. So as I said, I was -- there was a Barclays room where we
13 had the Barclays, sort of, base. And together with Mr. Richie
14 I was focusing on making sure that the elements of the
15 transaction worked out and was a sensible transaction for
16 Barclays to do. So that we understood the value of the assets
17 we were taking on, and we understood the extent of the
18 liabilities we were taking on.
19 Q. And in particular, sir, were you focused on the regulatory
20 capital requirements of this contemplated transaction, was that
21 one of your specific roles the night of the 15th into the 16th?
22 A. Yes, you're right. That was a specific issue. Capital at
23 that time was incredibly scarce. Suppliers, you know, there'd
24 been significant problems. You know, the weekend before, I
25 think Fannie and Freddie went into conservatorship and there

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1 were great issues around the capital of banks, share prices
2 were moving down rapidly across all banks. And one of my jobs
3 was to make sure the effect of the transaction wasn't
4 detrimental to Barclays regulatory capital.
5 Q. And just broadly speaking, to the extent Barclays was
6 contemplating taking on billions of dollars of assets, there
7 would be capital -- regulatory capital requirements imposed on
8 Barclays in connection with the taking on of those assets,
9 correct?
10 A. Yes, that's correct. So regulatory capital you know
11 taking a charge on the asset base on how big your position is,
12 and the riskiness of the underlying asset.
13 Q. And to the extent the transaction that was being
14 contemplated generated or produced negative goodwill that is
15 something you would count against your regulatory capital
16 needs, correct?
17 A. Yes. So negative good will would give you an accounting
18 game which would go into your earning, which would give you a
19 bigger capital base, which would help you to support a higher
20 regulatory capital charge on the assets.
21 Q. So all the things being equal if you're getting a given
22 set of assets, if you get some negative goodwill with that
23 transaction you have to raise or procure less regulatory
24 capital to support that base of assets, correct?
25 A. Yes.

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1 Q. And given how scarce capital was in those times you were
2 focused on what the negative good will was going to be
3 generated by this transaction, correct?
4 A. Yes, so I was focused on looking at all of the regulatory
5 capital, the capital charge on the assets, and -- yeah, the
6 ones that --
7 Q. In fact --
8 A. -- the accounting result for the negative goodwill.
9 Q. And in fact, if the transaction did not produce as much
10 negative goodwill as you had calculated or estimated, there
11 might be a need to provide regulatory capital from other
12 sources within the Barclays group, correct?
13 A. Yes. So --
14 Q. Was that a yes to my question?
15 A. -- yeah, that is correct.
16 Q. And in fact, if you didn't have enough regulatory capital
17 available within other parts of the group, Barclays may
18 actually have to go the market and raise capital in these very,
19 very difficult times for raising capital, correct?
20 A. Yes. And I -- and at the time we did the deal, we were
21 also -- we were looking at that as well. I think in some of
22 the documents you can see we were looking at that.
23 Q. And in terms of the work that you were doing that week,
24 early in the week of the 15th, you were conveying to management
25 and on to the board of directors of the group, what the

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1 expected negative goodwill was off this transaction that was
2 being contemplated with Lehman, correct?
3 A. Yes. Yeah, the regulatory capital, including the negative
4 goodwill. That's correct.
5 Q. And representations were made to the board, correct, about
6 what the expected negative goodwill was on a pretax basis, for
7 this transaction, correct?
9 Q. And that was based on calculations that had been done by
10 you and people working with you, correct?
11 A. Yes. That's correct.
12 Q. If you could turn in your binder to the exhibit that has a
13 tab M-227?
14 MR. TAMBE: And this was one of those exhibits, Your
15 Honor, that there was no objection lodged. I believe it's
16 admitted in evidence.
17 THE COURT: Okay. Thank you.
18 Q. Are you there, sir?
19 A. Yes.
20 Q. First of all, you recognize this as an e-mail -- although
21 it is titled as being from Tom McCosker, in fact it is an
22 e-mail written to you by Mr. Gary Romain, correct?
23 A. Yes, that's correct. It says at the bottom, you can see
24 Gary Romain using Tom's e-mail.
25 MR. TAMBE: If you could just blow that up, that'd be

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1 great.
2 Q. And Gary Romain -- who was Gary Romain?
3 A. Gary Romain is the head of the technical accounting group
4 within Barclays Capital. His -- which reports up to me. And
5 in terms of doing the transaction, Gary was the person who I
6 tasked with putting together the acquisition balance sheet.
7 Q. So he's someone you worked with very closely throughout
8 the week of the 15th and afterwards, correct?
10 Q. In fact, all the way through the posting of the final
11 acquisition balance sheet as it was reported to the SEC and
12 other places, correct?
13 A. Yes. So Gary was running that work. There was a huge
14 amount of changes as that work went through, and Gary was
15 keeping me informed in terms of the detail of that. You know,
16 I was more involved in some business and involved in other
17 ways.
18 Q. If I could draw your attention to the top of the page,
19 this is an e-mail dated the 16th of September, about 5:50 a.m.
20 GMT. Do you see that?
21 A. Yes. I can see that.
22 Q. So early morning hours in New York, correct?
23 A. Yes. Yeah, Gary was working out in New York in -- yeah.
24 Q. He'd come out to New York, just as you had, correct?
25 A. Yeah.

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1 Q. And in fact, he's writing from another terminal, because
2 he didn't have his own terminal, he was logging on through
3 someone else's?
5 Q. And at this stage -- this is the early morning hours of
6 the 16th -- you've been negotiating with Lehman since the
7 morning of the 15th, correct?
8 A. Yes. Yeah, that's correct.
9 Q. And there is a proposed transaction that has been arrived
10 at by this point in time, sir?
11 A. Yeah -- there were changes minute by minute and hour by
12 hour. Yeah, and my assumption is there are the latest numbers
13 Gary had at that point in time which he was putting into this
14 e-mail. This was his summary of what the latest data he
15 thought was.
16 Q. And he's sending this -- and let's just get some of the
17 names down -- he's sending this -- he's copying you and himself
18 on this. But he's sending it to several other people at
19 Barclays. Jonathan Stone, who's that?
20 A. He's the treasurer of Barclays.
21 Q. Barclays PLC? Barclays Capital?
22 A. Barclays PLC.
23 Q. Okay. Richard Hayworth?
24 A. Richard Hayworth is someone who supports Bob Diamond.
25 Q. Bill Castell?

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1 A. And Bill Castell and Dan Meredith-Jones both work in the
2 corporate development group. So they work within the center of
3 Barclays PLC on acquisitions and deals.
4 Q. And if you take a look at the information that Gary Romain
5 is sending these individuals and on which you are copied, he's
6 sending something that he's referred to as an acquisition
7 summary. Do you see that?
9 Q. And it has valuations on it for various items: inventory,
10 real estate, etcetera. Do you see that?
11 A. Yes, I can see that.
12 Q. And attached to this e-mail, the third page of the
13 exhibit, is a spreadsheet of sorts, correct?
14 A. Yes.
15 Q. And the numbers that appear on that spreadsheet tie out to
16 the cover e-mail correct?
17 A. I'm sure they do. I'll take your work for it.
18 Q. The first item on the spreadsheet, the inventory carrying
19 amount, do you see that?
20 A. Yes.
21 Q. Now, that's carrying amount on Lehman's books. Is that
22 right?
23 A. I would assume that's what it was. I don't know exactly
24 what that starting point he has there was. But I assume that
25 was a number we got from Lehman.

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1 Q. And below that you have inventory -- below that the
2 spreadsheet had inventory valuation adjustment. Do you see
3 that?
4 A. Yes.
5 Q. And that's a -3.5 billion dollar number, correct?
6 A. Yes.
7 Q. Okay. And that number was arrived at through the process
8 you described where traders from Lehman and Barclays sat and
9 tried to come up with new valuations, right?
10 A. Yes. I said coming up with fair valuations at that point
11 in time. Yeah, so the number, which I suppose I recognize,
12 would be the net inventory total number, which is the result of
13 that exercise of trying to get the fair valuation in terms
14 of -- I don't know the details of what Lehman had, what the
15 data -- what the data -- that data was or anything. But the
16 answer, 60.5, would be the fair value coming out of those
17 negotiations.
18 Q. Continuing on down, you have an item one billion for
19 Seventh Avenue. And that's for the real estate. Is that
20 right?
21 A. Yes.
22 Q. And moving on further, there's a line item that says
23 "Nonfinancial assets, 1.2 billion." Do you see that?
24 A. Yes.
25 Q. And what was that for, sir?

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1 A. I'm not -- I'm trying to recall precisely what that was
2 for. I'm not -- I'm not exactly sure. I don't know if that
3 included data centers and things. I can't remember.
4 Q. Well, let's see if we can jog your memory a little bit.
5 Let's go to M-1, which is a tab in your binder there. And
6 that's a copy of the asset purchase agreement?
7 A. Yes.
8 Q. And if you turn to page 6 of that document, you'll see a
9 definition of purchased assets. Do you see that?
11 Q. And there are a series of items listed there, some of
12 which are financial assets and others are nonfinancial assets.
13 Take a moment and just review what that list of assets is. It
14 goes on to page 8. Let me know when you're done reviewing that
15 list.
16 A. Yes, I've looked at that.
17 Q. The 1.2 billion on the schedule, the spreadsheet, in
18 Movant's Exhibit 227, that relates to those nonfinancial assets
19 of the type that are described in the asset purchase agreement,
20 correct?
21 A. I think, as I said earlier -- you know, I don't have any
22 recollection of precisely what that refers to.
23 Q. That's the type of asset classes that would be picked up
24 by nonfinancial assets in your schedule, in Movant's 227,
25 correct?

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1 A. As I didn't prepare the schedule -- yeah, I think you
2 could be right, but I -- you know, I don't have any knowledge
3 of precisely what was in that.
4 Q. Well, let's go back to the accuracy point, all right? You
5 are tallying up, at a critical point in the negotiations, on
6 the morning of the 16th, what the value of this transaction is.
7 You're listing the assets. We know you're not being a cowboy,
8 right? Right?
9 A. Yeah.
10 Q. Right. So when you put a number on there of 1.2 billion
11 for nonfinancial assets, you or Gary Romain had some idea of
12 what those nonfinancial assets were before you assigned the
13 billion dollars to them?
14 A. Yeah. There are a lot of different schedules at this
15 time. What I'm saying is, on this schedule, I can't recall
16 precisely what was in there. But, yeah, the stuff which we
17 were going through, we went through in a lot of detail.
18 Q. To the extent there was intellectual property,
19 intangibles, that would have been picked up by something like
20 this, correct? You were accounting for that in some way, were
21 you not, sir?
22 A. I think at this point in the proceedings, my recollection
23 is that we didn't think that the intangible assets we were
24 taking on would have any value at all. So I don't think we
25 ascribed any value to the intangible assets at this time.

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1 Q. And so when you said --
2 A. We thought we were buying a bankrupt company. We didn't
3 think there was any value in -- intangible assets would include
4 things like the Lehman name. We didn't think there was any
5 value in those assets at the time we were buying it.
6 Q. Putting aside the Lehman name, you were also buying
7 licenses, correct? You were buying indices. You were buying
8 other types of intellectual property that you were intending to
9 deploy, correct?
10 A. That's true. And I think -- but I think at the time, we
11 thought it was going to be a de minimis number. So at the time
12 I didn't -- I don't think we included any value there --
13 Q. And you said --
14 A. -- upon reflection.
15 Q. -- and you said at this time?
16 A. Yes.
17 Q. That's through the week of the 15th, is that right?
18 A. Yes.
19 Q. So through the week of the 15th, you believed the
20 intangibles had a de minimis value. Is that correct?
22 Q. And you also mentioned, given that Lehman was a bankrupt
23 company, these assets wouldn't have any value to Lehman. But
24 they would have value to you, correct, sir?
25 A. Yeah. Well, some of those would have some value, some

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1 wouldn't have some value. But subsequent to the week of the
2 15th, so later on, when we went through -- we had time to go
3 through in detail to work out precisely what the calculations
4 and accounting we had to follow was, we actually found out,
5 going through, that we did have to ascribe value to intangible
6 assets, which we hadn't realized at that time.
7 Q. And just --
8 A. And --
9 Q. -- go ahead.
10 A. -- and just to explain what you do in ascribing value.
11 So --
12 Q. Well, that isn't my question, sir. We'll get to that.
13 A. Okay.
14 Q. I'm just -- I’m still focused on the week of the 15th, if
15 you don't mind?
16 A. Okay, that's fine.
17 Q. I just want to be clear, on the week of the 15th, your
18 view was you could ascribe zero value to those nonfinancial
19 assets, the intangibles?
20 A. We felt that was a good approximation of the value.
21 Q. I'm sorry, you thought what was a good approximation,
22 zero?
23 A. We thought -- we thought it would be a de minimis value.
24 Q. So zero?
25 A. So zero.

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1 Q. Moving down in the schedule, so Exhibit 227, the third
2 page. There's a line item there for "Short Positions -56." Do
3 you see that?
4 A. Yes.
5 Q. And was it your understanding in Lehman II, that you were
6 getting not just the long positions but also associated short
7 positions, correct?
9 Q. And we see an adjustment there in the carrying amount for
10 the inventory, the long positions. But there is no adjustment
11 reflected on your schedule for the short positions, correct?
12 A. That's correct. My assumption is that the valuation
13 adjustment further up would cover both for long and short
14 positions.
15 Q. Well, you don't know that, do you, sir?
16 A. I don't know that. You're right. It's my assumption.
17 Q. You're just guessing?
18 A. You're right.
19 Q. Bonus accrual, you have a -1.3 billion for bonus accrual.
20 Do you see that?
22 Q. And that was the result of the analysis you described
23 where you consulted your HR, you thought about the folks that
24 you were going to be taking on, you consulted some Lehman
25 documents as well to come up with that number. Is that right?

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1 A. So what you can under -- to explain, this is the
2 accounting liability we thought we'd have to reflect regarding
3 compensation. So we had estimates of a total compensation
4 liability which we were taking on of about two billion. In
5 terms of what liability would we have to reflect in our day-one
6 acquisition balance sheet, our estimate was as low a number of
7 1.3 billion. And what that related to was the exercise our HR
8 department had done together with Lehman's HR department, going
9 through name by name in terms of the amount we were going to
10 pay people. And these were contractual amounts. So we were
11 guaranteeing to pay people -- to make sure we kept the people
12 on, which added up to the 1.3. The total -- as I said, the
13 total estimate of the cost of 2 billion, we thought there was a
14 further 700 million which was payable to the rest of the Lehman
15 staff, the people we didn't have and hadn't agreed contractual
16 bonuses to. And we didn't know at that time whether the rest
17 of the Lehman staff were going to be paid bonuses or whether,
18 when we looked at the Lehman staff and the Barclays staff,
19 there would be overlap, and we'd have to get rid of them, we'd
20 have to have severance costs for those staff.
21 Q. So that explanation that you just gave us, that's not
22 something you knew on the 16th of September when the schedule
23 came across your desk, correct?
24 A. The --
25 Q. Correct?

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1 A. -- I didn't know what the 700 million -- you're right. So
2 I knew I had an estimate of 2 billion in total. What I knew
3 was the bit which was a fixed liability at that point, was the
4 1.3. What I didn't know was how much of the other 700
5 million -- I didn't know the spread of that 700 million.
6 Q. And in fact, when you looked further into the nature of
7 the comp liability, the assumed liability that was being
8 assumed by Barclays, you realized that, in fact, you would have
9 to account for the full two billion, correct, sir?
10 A. Yes, you're right. So --
11 Q. And you saw that as a 650 million dollar problem when you
12 noticed that, correct?
13 A. -- so I think as I said, when I saw this schedule here --
14 well, sorry, the work we did on this schedule, I thought I was
15 only going to have to accrue 1.3 billion in the acquisition
16 balance sheet. The other 700 million, which I thought I was
17 going to spend, I thought would be charged against my earnings,
18 so going to my profit and loss account, and subject to months.
19 Yes, you're right. Later on, when I saw a document which said
20 that the contractual liability I was taking on per the asset
21 purchase agreement was two billion, what I realized was the 700
22 million, which I thought was going to be charged for future
23 earnings, would actually be a liability I'd have to assume on
24 day one against my acquisition balance sheet.
25 Q. And in fact, that was a big problem for you, because that

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1 was 650 million dollars less of negative goodwill -- the result
2 of raising that assumed liability from 1.3 to 2 billion, was it
3 ate into your negative goodwill, correct?
4 A. Yes. So whilst it didn't change the economics, it changed
5 the day-one negative goodwill.
6 Q. And had an impact on your regulatory capital requirements,
7 correct?
8 A. On the day-one requirements, yes.
9 Q. Now, the information that you received from Mr. Romain
10 goes on, then, to list consideration and net assets of 5.2
11 billion and the negative goodwill of 3.7 billion, correct?
13 Q. And that's the number that then gets reported to the board
14 of directors of Barclays and -- when they're asked to approve
15 this transaction, correct? It's a number just south of 3.7. I
16 think 3 billion is what you reported?
17 A. Yeah. As I said, there were a number of changes to these
18 documents over time. So I think this is a slightly different
19 point in time to when we sent stuff to the board of directors.
20 Q. Well, slightly different was four hours later, correct,
21 sir?
22 A. Yeah. And you had to think of a time scale of when this
23 deal was done. So, you know, this was one o'clock in the
24 morning, having arrived at Lehman's at about middle of the day
25 and done the work. So four hours later was quite a lot of time

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1 in the time scale of this deal. The deal was consumed over --
2 you know, over twenty hours or so -- overnight.
3 Q. If you can turn to Exhibit 6 -- tab 6 in your binder?
4 MR. TAMBE: This document, too, Your Honor, has been
5 admitted into evidence. It has been admitted into evidence.
6 THE COURT: All right, fine.
7 Q. You recognize this cover document -- cover page, as an
8 e-mail from you to James Walker. Do you see that?
9 A. Yes.
10 Q. And who is Mr. Walker?
11 A. Mr. Walker was our CFO of Barclays Capital in the
12 Americas.
13 Q. And you are forwarding Mr. Walker the board dec. Do you
14 see that?
15 A. Yes, I see it.
16 Q. And the board dec is the document that is attached to this
17 cover e-mail. Do you see that?
19 Q. If you look at the time that your e-mail was sent to Mr.
20 Walker, that was on the 16th at 9:52 Greenwich Mean Time, GMT.
21 So you see that?
22 A. Yes, I can see that. I think, as I said, I was in New
23 York. So that would have been -- I think it was four hours
24 earlier, so 5:52 in the morning, New York time.
25 Q. And you'd received the other e-mail around one or two

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1 o'clock in the morning?
2 A. That's right. Several hours earlier.
3 Q. All right. So turning to the board dec -- you may need to
4 turn your binder around for that.
5 (Pause)
6 Q. You have the executive summary that appears on page 2.
7 You had reviewed this document before forwarding it, correct?
8 A. Yes. So at the time, yes, I did see this document.
9 Q. Okay. And you had worked with Gary Romain and others in
10 preparing the financial information, the numbers that went into
11 this document?
12 A. Yes, Gary Romain and team would have fed the financial
13 numbers into this document.
14 Q. As you move down the executive summary to the chevrons or
15 the triangles, the second triangle down reads: "We would
16 acquire 75 billion of assets and liabilities. The business
17 would include RWA of 13.5 billion." Do you see that?
19 Q. And the 75 billion of assets and liabilities you're
20 referring to are the assets and liabilities you were assuming
21 in the Lehman II transaction, correct?
23 Q. And when you make the reference to "RWA", that's risk
24 weighted assets. Is that right?
25 A. Yes, that's correct. So that's a measure of scheduled

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1 regulatory capital, you risk weight your assets. So that's
2 what that means.
3 Q. And the asset number, the seventy-five billion of assets
4 and liabilities you're referring to there, that number was
5 arrived at through the process you described before. Is that
6 right?
7 A. Yes. So it would have been from the latest acquisition
8 balance sheet which Gary and his team had put together.
9 Q. Moving on to the next triangle. You say that, "We would
10 offer 250 million to acquire the business, and we are buying
11 1.5 billion worth of company-related property, headquarters and
12 data centers." And you go on to say, "The recognition of
13 negative goodwill amounts to three billion pretax, two billion
14 post-tax." Do you see that?
15 A. Yes.
16 Q. And again, that three billion dollar calculation was based
17 on an acquisition balance sheet similar to the one that you had
18 received hours before from Mr. Romain?
19 A. Yes.
20 Q. Correct?
22 Q. Listing the various amounts for assets and liabilities
23 that we talked about?
24 A. Yeah.
25 Q. Now, you'll see there's a discussion below here about

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1 seeking authorization to raise capital. Do you see that, the
2 612 million shares?
3 A. Yes. I can see that.
4 Q. And ultimately, in this board dec, what you're seeking is
5 approval for both the transaction and for the issuance of the
6 shares?
8 Q. Now, there was a connection between the two. I mean, to
9 the extent you were not able to generate -- well, I'll withdraw
10 that. There was a connection between the two. To the extent
11 that they were regulatory capital needs as a result of this
12 transaction, Barclays, the group, intended to meet those
13 regulatory capital requirements through negative goodwill
14 generated by the transaction itself, correct?
15 A. Yes.
16 Q. And some capital raised on the outside, correct?
18 Q. Now, the second to last bullet point, or the last chevron
19 reads, "We will be subject to a US legal process which is
20 unpredictable." Do you see that?
21 A. Yes.
22 Q. And you were referring to the US bankruptcy court process,
23 correct?
24 A. I -- as I said, I think we put the numbers in terms of the
25 words on this. I don't think I was involved in putting these

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1 words together. So, I can see what that means, and I wouldn't
2 like to speculate precisely what it meant. But I didn't write
3 the words on this.
4 Q. Well, you knew there was a court process that would be
5 required here, correct?
7 Q. This was not a transaction where you were simply going in
8 and buying assets, and it was between the two parties. There
9 was a third participant, correct?
10 A. Yeah --
11 Q. There was a court?
12 A. -- I think that's what that relates to, yes.
13 Q. And in fact, the court would need to approve the
14 transaction that was being proposed by the parties --
15 A. Yeah.
16 Q. -- correct?
17 A. That's correct. I'm just saying that they weren't my
18 words.
19 Q. And you understood throughout this week, the week of the
20 15th, that there, in fact, was a court process going on,
21 evaluating this transaction that was being proposed by the
22 parties, correct?
24 Q. And disclosures were being made in connection with that
25 court process, correct?

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2 Q. And you understood that the work you were doing, analysis
3 of assets and liabilities, was relevant to the disclosures that
4 were being made to the Court, did you not, sir?
5 A. No, I didn't understand that. And the reason why is, the
6 work I was doing was trying to work out the -- what the UK
7 accounting for these assets and liabilities. So how does
8 Barclays account for them on its books under UK accounting
9 rules? Which is a representation of the transaction, but isn't
10 necessarily something telling you economically how much is
11 Barclays making in the transaction. And I suppose that a
12 simple example -- you mentioned intangible assets a bit
13 earlier. So we didn't, at this point, have an amount in for
14 intangible assets, but if we had a billion dollar gain from
15 intangible assets, how that works in accounting is you
16 recognize a billion dollar gain. But then you had to charge
17 that through your P&L statements over a period. And in the
18 case of the intangible assets we had from Lehman, we're
19 charging most of it over five years. So there's no -- so you
20 represent a day-one accounting gain of a billion, and then over
21 five years, you represent -- you had the 200 million loss each
22 year over five years. So --
23 Q. Let me go back to my question --
24 A. -- what I'm saying is, the papers I was doing were the UK
25 accounting result, and I didn't think that had a bearing in

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1 terms of the court, which is looking at -- yeah, the economics
2 of the transaction. I was doing a different exercise.
3 Q. So your understanding was, the work you were doing was not
4 particularly relevant to the court process, correct?
6 Q. Did you get that understanding from speaking to others at
7 Barclays, sir?
8 A. I can't remember having those conversations. But the work
9 we were doing, you know, the lawyers, etcetera, knew the work
10 we were doing. I don't know what they did with that --
11 Q. So I guess what you're telling me is that no one ever told
12 you --
13 A. Yeah.
14 Q. -- the work you're doing may be relevant to a court
15 process that is underway?
17 Q. And your understanding was that your work was focused
18 solely on UK accounting issues, divorced from what was going on
19 in court?
20 A. That is what my work was focused on, the Barclays
21 accounting for the transaction under the UK rules.
22 Q. The work you were doing, you did report it through the
23 management chain at Barclays to others within Barclays,
24 correct?
25 A. Yes.

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1 Q. And as far as you know, the work you were doing was
2 available to the lawyers for Barclays, correct?
3 A. Yes. As far as I knew, yes.
4 Q. And you, in fact, had interactions with the lawyers for
5 Barclays throughout this week, correct?
7 Q. Did your understanding or awareness of the process -- the
8 legal process, grow as the week went on, sir?
9 A. Yeah. I'm -- I wasn't very involved in the legal process.
10 So I'm not quite sure what you mean by that. I mean, as you
11 said, I was obviously very aware of the legal process which was
12 going on.
13 Q. But let me just, I guess, further probe what your
14 understanding was of the legal process.
15 MR. TAMBE: May I approach, Your Honor?
16 THE COURT: Yes.
17 THE WITNESS: Thank you.
18 (Pause)
19 Q. Sir, I've handed you a document marked Movant's Trial
20 Exhibit 702. Do you recognize that as an e-mail that you sent
21 to your boss, Rich Ricci, on Wednesday the 17th of September,
22 2008, sir?
24 Q. And it's a one-line e-mail. Correct, sir?

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1 Q. And it was in connection with the work that you were doing
2 as part of the Lehman-Barclays acquisition, correct, sir?
3 A. Yeah. It was during that time.
4 MR. TAMBE: Your Honor, we offer Movant's 702 into
5 evidence.
6 MR. SCHILLER: No objection.
7 Q. And the one-sentence you write --
8 THE COURT: It's -- let me just --
9 Q. -- to Rich Ricci --
10 THE COURT: -- let me just acknowledge for the record
11 that it's admitted.
12 MR. TAMBE: I’m sorry.
13 (Movant's Exhibit 702, e-mail from Mr. Clackson to Mr. Ricci
14 dated 9/17, was hereby received into evidence as of this date.)
15 Q. The one sentence you write to Mr. Ricci is, "Careful about
16 bankruptcy courts." See that?
17 A. That's correct. That's correct.
18 Q. What exactly were you warning Mr. Ricci about?
19 A. I think, as I said in my deposition, where you showed me
20 this same e-mail, you know, I've got no recollection of having
21 sent this e-mail. As you said, during that week I hardly
22 slept, and I was nervous about many things. But I don't
23 remember precisely --
24 Q. I'm just trying to understand, sir. You described a
25 process where the work you are doing is not directly relevant

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1 to the bankruptcy process. That's what you just told us --
3 Q. --- right? And yet, you are writing to your boss on the
4 17th, the day that this transaction is first submitted to the
5 Court for approval, and you say to him, "Careful about
6 bankruptcy courts." Do you see that?
7 A. I can see that, yeah.
8 Q. And you can't think of any reason why you would be sending
9 him that e-mail on the 17th of September?
10 A. That -- as I said, I -- and as I said in my deposition,
11 yeah. It's plainly my e-mail. I can see what it says. I just
12 can't remember what or why I sent it.
13 Q. Well, sir, had you had discussions with Mr. Rich Ricci
14 about the work that you had been doing and the disclosure of
15 that work to this Court, sir?
16 A. I hadn't had that at all.
17 Q. Had you discussed with anyone else within Barclays whether
18 or not the work that you were doing ought to be or needed to be
19 disclosed to the Court?
20 A. No. I think, as I said earlier, what we were doing our
21 lawyers knew about. But I didn't explicitly have that
22 conversation at all.
23 Q. Did you expect Mr. Rich Ricci was going to be addressing
24 the Court on the 17th?
25 A. No, I didn't expect that.

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1 Q. Did you expect that he would be addressing the Court on
2 any subsequent date?
3 A. No, I don't think I --
4 Q. Did you think that -- I’m sorry, were you done?
5 A. -- no. I don't think I expected him to be addressing the
6 Court at all.
7 Q. And did you expect Mr. Rich Ricci or anyone else from
8 Barclays to be making any written submissions to the Court?
9 A. I -- well, I -- yeah. I knew the lawyers at Gotshal were
10 going through a court process and were dealing with the Court.
11 As I said, I didn't have much knowledge of that process of how
12 it worked.
13 Q. Were you perhaps telling Mr. Ricci to be careful about
14 what was put in the written submissions that were made to this
15 Court?
16 A. I was obviously saying be careful, and I'm a cautious
17 person. But I -- as I said, I've got no recollection of
18 precisely what the substance of this e-mail was about.
19 Q. Going back to the board dec which acknowledges this US
20 legal process. You see that? Do you see that's Exhibit --
21 A. Yes.
22 Q. Let's go back to Exhibit 6. There was another reference
23 to US legal process, I believe, later on in the dec. And if
24 you go to page 10, you'll see it there. And it's the third
25 bullet point down. Do you see it?

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1 A. Yes. I can see it.
2 Q. And there, there's a reference made, "Remaining issues/
3 risks and mitigants." Do you see that?
4 A. I can see that, yes.
5 Q. It says, "Transaction is subject to US legal process and
6 the decision of the judge. There is no certainty that our
7 proposed timetable will be followed by the judge." Do you see
8 that?
10 Q. Beyond a concern about the timetable, did you have any
11 discussions with anyone at Barclays about whether there could
12 be other types of US legal process implications to the proposed
13 transaction?
14 A. I can't remember --
15 Q. Other than mere delay?
16 A. -- I can't remember having any other conversation. And
17 just to go back, Mr. Tambe, just so we're clear, I don't think
18 I, as I said, wrote the words in this document. So as I said,
19 we put the numbers into this document, but I wasn't involved in
20 writing the document. I just wanted to be clear on that.
21 The timeframe issue which is highlighted here is clearly
22 the big issue we had, because we were buying a business which
23 was melting down incredibly fast. And so we thought, to be
24 able to get the business intact, we needed to do the deal very
25 quickly. So that was clearly the main issue we sought, which I

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1 think is the main risk which is being outlined.
2 Q. Do you recall any discussions about the US legal process
3 and timing? Is that something you remember being discussed?
4 A. As I said, I can remember that we were very concerned
5 about getting the deal done quickly so that we didn't lose
6 money in the business if we didn't get the deal done quickly.
7 But --
8 Q. Do you --
9 A. -- I wasn't involved, as I said earlier, in the specific
10 stuff around the US legal process.
11 Q. As involved or uninvolved as you were, do you recall any
12 discussions about the disclosure obligations of the US legal
13 process?
14 A. No, I don't remember any conversations about that.
15 Q. Now, after the board presentation was done on the 16th,
16 you didn't attend that, correct?
17 A. No, I didn't attend it.
18 Q. And you didn't listen in by phone, did you?
19 A. I don't think so.
20 Q. But you did understand, at some point on the 16th, that
21 Barclays' board approved the transaction going forward.
22 A. True. That was my understanding.
23 Q. And it was your understanding that the approval that you
24 had sought and the approval that you had obtained was for the
25 transaction and the transaction parameters described in the

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1 board presentation, correct?
2 A. Yes. I can't remember precisely what the -- as the
3 transaction was moving, I can't remember precisely what breadth
4 or whatever the board approval was. But --
5 Q. You don’t recall having to go back to the board to obtain
6 approval separately for the Lehman III transaction, do you,
7 sir?
8 A. We had a huge number of board meetings over that time. We
9 obviously had a number over the weekend to deal with the
10 earlier Lehman transaction. I can't remember precisely what
11 other board meetings we had subsequent to this one.
12 Q. So --
13 A. As I said, I didn't attend those meetings.
14 Q. -- and as you sit here, you have no recollection of
15 preparing board materials for a subsequent board meeting in
16 connection with the Lehman III transaction, do you, sir?
17 A. We were preparing a lot of different material for a lot of
18 different people, so I can't recollect specifically. But that
19 doesn't mean we didn't do something.
20 Q. But the answer to my question is you don't specifically
21 recollect --
22 A. I don't recollect --
23 Q. -- preparing the board material for Lehman III --
24 A. -- that’s correct.
25 Q. -- approval, correct?

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2 Q. Turning, in your book, to tab 130. That's Movant's
3 Exhibit 130.
4 (Pause)
5 Q. You'll see this is an e-mail from Vick Siall (ph.) to
6 several people within Barclays, and you're shown as a cc. do
7 you see that?
9 Q. And that's also on the 16th, a little bit later in the
10 day. Do you see that?
12 Q. And if you can turn, actually, to the second page -- it's
13 the e-mail at the bottom of the first page over onto the second
14 page. And that e-mail continues over to the third page.
15 That's an e-mail from Bill Castell. Do you see that?
17 Q. And the subject is "Long Island Balance Sheet." Do you
18 see that?
19 A. Yes.
20 Q. And Long Island was the project name or the code name for
21 Lehman, correct?
23 Q. And there's a discussion there about some of the numbers
24 that had been set out in the board dec. Do you see -- that's
25 how the e-mail begins: "Following the numerous e-mails and

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1 people trying to reconcile the 75.3 billion" -- it says pounds.
2 I assume they mean dollars -- "in the board dec, and in
3 particular, wanting to understand the 19.9 billion in the board
4 dec, I thought it best to outline what I understand to be the
5 latest position." Do you see that?
7 Q. Okay. And do you recall there being discussions about
8 some lack of clarity as to the 75.3 billion dollars in assets
9 in the board dec versus the 19.9 that's also shown in the board
10 dec?
11 A. I can remember there was lots of lack of clarity over that
12 time. As you've shown, over a space of a few hours, the
13 numbers were moving quite significantly. So -- and Bill
14 Castell was trying to work in London. And we had another team
15 working in New York. So there were a lot of misunderstandings
16 around that time. I can't remember specifically this one. But
17 I'm not surprised. There were a lot of misunderstandings.
18 Q. Okay. And just to go back to the board dec to see what
19 exactly this concern might have been about, if you could turn
20 back to the dec, which is Exhibit M-6 -- Movant's 6 on page 5
21 of the board presentation? And the numbers that were being
22 discussed in the e-mail that we just talked about, Movant's
23 130, are the bottom two numbers in the bottom right-hand
24 corner, the 19.9 and the 75.3. Do you see that?

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1 Q. Just before we get to those numbers, this document, this
2 page also describes the Lehman I transaction in a sense, right?
3 You have the Long Island starting position; you have the
4 excluded and the original transaction, that's Lehman I, I
5 presume. Right?
6 A. Yes. I think so. Yeah, the Long Island was the total
7 Lehman balance sheet, excluding the original transaction, which
8 was when we were taking the whole global business, but we
9 weren't taking on some specific assets and liabilities.
10 Q. So, just to understand sort of the parameters of Lehman I.
11 Lehman I would be the Long Island starting position less the
12 excluded original transaction? That would give you a sense of
13 the magnitude of Lehman I?
15 Q. And then to get to the magnitude of Lehman II, which is
16 the deal discussed on the 15th and 16th, that's the "New
17 transaction included" column, correct?
18 A. Yes, I think so. I think the column which is called
19 "Excluded new transaction," is just the balancing figure to
20 get -- to make the table to add across.
21 Q. Now, there's a series of detailed numbers that appear in
22 that column, "New transaction included." Do you see that?
24 Q. And do you know the source of those numbers, sir?
25 A. I presume the source would be Gary Romain and the people

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1 working with Gary, in terms of producing the acquisition
2 balance sheet.
3 Q. And those are numbers that would have been derived in this
4 process of discussions between traders from Lehman and traders
5 from Barclays, correct?
6 A. Yeah, that would be my assumption.
7 Q. Have you seen any documents or balance sheets that would
8 show those figures and where those figures came from that went
9 into the board dec, sir?
10 A. We have, as I said earlier, a huge number of different
11 balance sheets. I'm sure I have seen one with the same
12 numbers. I can't recall now precisely which one that would be.
13 Q. Well, if you can, in your book, if you have a tab 254,
14 let's see if we can identify one of those spreadsheets.
15 MR. SCHILLER: Your Honor, we have an objection on
16 hearsay to this document. This witness didn't receive this
17 when it was generated. We've advised our colleague of our
18 objection on hearsay.
19 THE COURT: Why -- is the objection to the e-mail
20 which is the cover document, or is it to the attachment which
21 includes a number of iterations of the balance sheet?
22 MR. SCHILLER: It's to the entire document, Judge.
23 MR. TAMBE: If I may, Your Honor? I think this was
24 admitted yesterday -- this document was admitted yesterday.
25 THE COURT: Well, if that's true --

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1 MR. SCHILLER: I will withdraw my objection.
2 THE COURT: -- then the objection is withdrawn and I
3 don't have to think about this anymore. It's just part of the
4 record. But this raises an interesting point about simply the
5 coordination of documents. I have -- I've been going on faith
6 since Monday that the parties have been working diligently to
7 avoid unnecessary document objections. And we started with a
8 list that I still have on my bench of documents, exhibits, as
9 to which there have been no objections. And mostly, during the
10 course of these hearings, documents have been admitted without
11 objection. And on rare occasion, as we had this morning, there
12 was an issue about getting the benefit of the doubt for the
13 SIPA trustee with respect to a potential attachment, which was
14 an oblique use of the objection to gain another strategic
15 advantage for one of the movants.
16 But in the ordinary course, I think we need to be
17 clearer, just so we don't end up with a similar kind of
18 problem. If you have an issue with the document, I want to
19 hear that. But if it's been resolved, obviously, it's not in
20 your interest or mine to spend time talking about it.
21 MR. SCHILLER: Your Honor, I'm sorry, to interrupt,
22 but you admitted it, Judge, for the state of mind. That was
23 the purpose on which it came in, just to remind the Court,
24 because you've seen many documents, not for the truth of what
25 was asserted.

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1 THE COURT: Well, I'm going to make a suggestion,
2 because while I'm certainly learning a lot during the course of
3 this week, the parties and their counsel have been living with
4 this case very intensively for a long time. If there is a
5 document which is admitted for a limited purpose, I'm simply
6 going to suggest that that limitation be noted on some
7 comprehensive list, footnoted or otherwise marked, so it's
8 clear. And I'm also assuming that that's without prejudice to
9 the ability of the movants to seek to have the document
10 admitted for all purposes, assuming they can overcome the
11 objection, either through a witness or a stipulation or some
12 other agreed use of the document.
13 So this is all an aside, it gives the witness a break
14 from the questioning, so it's probably great for the witness.
15 But in terms of just case management as it relates to the use
16 of documents, it may be worth spending a little bit of time --
17 and I know this is an intense week for the lawyers -- to update
18 the schedule of the exhibits and to make sure that any
19 notations that need to be made concerning the limitations on
20 use are clearly stated so we can all be clear as to what's in
21 and what limitations might apply.
22 MR. TAMBE: Not to belabor the point, Your Honor, I
23 fully appreciate that, and we will do that. But with respect
24 to this particular document, it was originally admitted for a
25 limited purpose and then admitted for the truth through Martin

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1 Kelly. But all the more reason for us to coordinate, Your
2 Honor.
3 THE COURT: Well, we could go back and try to confirm
4 whether or not that happened yesterday during Mr. Kelly's
5 examination. I accept your representation. I don't know if
6 Mr. Schiller has second thoughts on that and if you need to
7 meet and confer during a break to allow for the questioning to
8 proceed. But my suggestion is that we simply use the document.
9 It's either in for all purposes or it's in for a limited
10 purpose, but either way, it's available for questioning.
11 MR. SCHILLER: Thank you, Your Honor.
12 BY MR. TAMBE:
13 Q. Mr. Clackson, if you could turn in Exhibit 554 (sic) to
14 page 10, which is the last page of the exhibit?
15 A. I'm sorry, Mr. Tambe, but I think 554 --
16 Q. I'm sorry, 254. It's Exhibit 254.
17 A. 254?
18 Q. It looks like what's on the screen.
19 A. Yeah.
20 Q. See it? And if you turn to the last page, page 10? And
21 this might be easier for us to do on the screen than for you to
22 do in hard copy, but if you could give it a try -- compare the
23 numbers that appear under "Assets" on that page 10, with the
24 numbers that appear on page 5 of the board presentation, sir.
25 And starting with commercial paper, mortgages, total

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1 corporate debt, corporate equity and derivatives, you will see
2 just both the descriptions and the numbers line up with what
3 the Barclays board was told about those asset classes on page 5
4 of the board presentation, correct?
5 A. Yes, I can see the numbers are the same. As I was never
6 copied on that document, I'm -- I don’t know if these were the
7 same numbers or this is coincidence. I've no understanding
8 about the origin of this document or these numbers.
9 Q. And if you look at the totals for assets on page 10 of
10 254, the 65.2 billion dollar number, do you see that?
12 Q. And right below that there's a collateralized short-term
13 agreements of 10 billion. Do you see that?
14 A. Yes.
15 Q. Which is a total of about 75.2 billion?
16 A. Yes.
17 Q. Okay. And you'll see that the total that you have on page
18 5 of the board dec is 75.3. Do you see that?
19 A. Yes.
20 Q. Is it your understanding that Mr. Romain was pulling
21 information that was then passed on to the Barclays board from
22 balance sheets and financial spreadsheets that were generated
23 by Lehman?
24 A. Yeah. I don't know fully the process Gary was going
25 through. I think you'd have to ask Mr. Romain that question

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1 about precisely where he got all the data from.
2 Q. And just to be clear, you were focused on the numbers in
3 the board dec, correct?
4 A. Yeah.
5 Q. And you were being careful, again, on the asset side, in
6 totaling up the assets, that you were being accurate in
7 describing the size of this transaction to your board, correct?
8 A. Yeah. But it was Mr. Romain who I delegated to do that
9 work. And so he was the person who was doing the detail work.
10 And he's a very precise and high-quality individual who I know
11 would do the work accurately. In terms of now, I don't
12 recognize the schedule you've given me. But --
13 Q. Well, you -- Mr. Romain, you believe, would have been
14 careful --
15 A. Yes, I do.
16 Q. -- and deliberate with his work, correct? And you trust
17 him and rely on him, correct?
19 Q. And he prepared these numbers for you, correct?
20 A. Well, he prepared the numbers, as I said, going into the
21 board dec. I think these numbers you've got on Exhibit 254 --
22 I'm not sure if they came from Mr. Romain or --
23 Q. I'm not suggesting to you that those numbers came from Mr.
24 Romain --
25 A. No, no --

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1 Q. -- I was just suggesting a similarity.
2 A. -- so -- yeah. I don't know if this is Mr. Romain's work
3 or not.
4 Q. The numbers that Mr. Romain gave to you, you believed to
5 be sufficiently accurate and credible to pass on to your board,
6 correct?
8 Q. And --
9 A. Well, I think Mr. Romain would have fed them in directly
10 into the board dec, and then I'd have reviewed that board dec.
11 Q. Just to be clear in terms of your delegating of authority
12 and responsibility to Mr. Romain. Within the finance function,
13 the buck stops with you, right?
14 A. That's true, true.
15 Q. Okay.
16 A. The buck stops with me on the transaction.
17 Q. And as we discussed at the beginning of your examination,
18 you would have been careful and conservative in reporting
19 numbers of asset sizes to your board, correct?
20 A. Yeah, so --
21 Q. You would not have inflated those number, correct?
22 A. -- we'd have put the fair market value in terms of the
23 amounts we put through to the board, yes.
24 Q. Now, turning to Mr. Vick Siall's e-mail which is Exhibit
25 130. And you'll see what he's laying out on page 2 over

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1 onto -- ending on page 3 of that exhibit, Exhibit 130, is a
2 calculation of the negative goodwill number. Do you see that?
3 A. I can see that for Mr. Bill Sterling's going out, if
4 that's what you mean.
5 Q. And on page 2 of the exhibit, you have, under "FV
6 inventory" -- do you see that?
8 Q. And I assume you take those words to mean fair value
9 inventory?
10 A. That's correct. That would be the fair value of the
11 inventory.
12 Q. So a series of specific sub-items with gross numbers, what
13 appear to be adjustments, and then net numbers. Do you see
14 that?
16 Q. And your understanding is that that was the result of this
17 process of marking that was going on --
19 Q. -- and revaluation that was going on between Barclays and
20 Lehman traders, correct?
21 A. Of working out the fair market value, yes.
22 Q. Now, as you move down that page, there's that 1.2 billion
23 dollar number again under "Other". Do you see that?
25 Q. And on the earlier document there was a listing for

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1 nonfinancial assets of 1.2 billion. Here it's referred to as
2 "other", but there's a parenthetical under it. Do you see
3 that?
4 A. Yes. It's -- here it seems to say that this is fixed
5 assets. I think F&F probably stands for furniture and
6 fittings, etcetera. So it sounds like these are tangible
7 assets which we acquired as part of the transaction. So the --
8 you know, it's stuff within the building. It's computers,
9 etcetera.
10 Q. So these are not the intangibles that you were saying were
11 difficult to value, you didn't value that week? These are
12 tangible assets?
13 A. Yeah. So this was -- it looks like this was an estimate
14 of the tangible assets.
15 Q. And do you know whether this figure, the figure of 1.2
16 billion for other tangible assets, was ever conveyed to the
17 Court in any form, sir?
18 A. I know there are a number of versions of this document.
19 And as -- I know as we were doing the work, in some cases we
20 put some assets into these. And then as we did further work --
21 and I think this number came out, as we did further work,
22 because there was a thing that we hadn't acquired. There was
23 an assumption here that we'd acquired something, and then later
24 on we thought we hadn't acquired it. And so we took that out.
25 So as I said earlier, the numbers here were changing minute by

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1 minute and hour by hour. What we conveyed to the board at the
2 time of the board presentation would have been our latest and
3 best view of what the transaction was.
4 Q. You might have misheard me, and maybe because I'm a little
5 parched. The question was, do you know whether that number,
6 the 1.2 billion dollar number, was ever conveyed to the Court,
7 not the Barclays board.
8 A. I’m sorry, I thought you said to the board. Again, I
9 don't -- I'm not even sure if that number stayed within our own
10 estimate for very long, and I don't know if that number was
11 correct. It was, at that point in time, a number in the
12 schedules. And I have no reason to believe it was conveyed to
13 the Court. But I also, from my recollection, think that number
14 disappeared later on, as we didn't think it was correct.
15 Q. Let's turn to 135 which is Movant's Exhibit 135.
16 MR. TAMBE: I believe this has been admitted without
17 objection, Your Honor.
18 Q. Are you there, sir?
19 A. I am.
20 Q. Okay. Now, this document is an e-mail chain with an
21 attachment to it. Do you see that?
23 Q. All right. It starts on page 2 with an e-mail from Julia
24 Douglas to you. And then it proceeds to an e-mail exchange
25 amongst yourself and Mr. Romain and others. Do you see that?

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1 A. Yes, that is correct.
2 Q. And this is on the 17th of September, 8 p.m. GMT. Do you
3 see that -- the top e-mail is?
5 Q. Now, if you'd just follow the trail here, Ms. Douglas has
6 sent you a document, and you then respond by writing to Mr.
7 Castell with copies to Gary Romain, Chris Weidler, James
8 Walker. Do you see that?
9 A. Yes.
10 Q. And I'm going to focus on your e-mail to them.
11 A. Yep.
12 Q. And what you're referring to is a completion balance sheet
13 from draft docs LI side. Do you see that?
15 Q. And the document that you're referring to is the
16 attachment, correct?
17 A. Yes, I assume that's the case.
18 Q. And LI side is from the Lehman side, correct?
19 A. Yes. LI was the code name, yeah, for Lehman.
20 Q. And then you go on to provide a calculation. And you say,
21 "This attachment gives the final asset split. Negative
22 goodwill from this method is some off 2.25 plus 2, which equals
23 to 4.25 minus 1.35." And you have within parentheses "A/sing
24 liability," which equals to 2.9. Do you see that?
25 A. Yes.

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1 Q. And in effect, sir, what you are doing there in that
2 formula, is comparing the assumed liability numbers for comp
3 and cure, which were reflected on certain financial schedules
4 at 2.25 and 2 billion, with what you have expected as Barclays'
5 accrual for those same obligations as of the closing date,
6 correct, sir?
7 A. Yes, certainly. What I've done here, this is an
8 accounting document. And what I've said is, for those two
9 elements, for cure and compensation, in my opening balance
10 sheet, what -- under A/sing liability is what accounting
11 liability do I expect to reflect in my opening balance sheet
12 for those two amounts of money that I have to spend. And it's
13 probably worth me explaining, there's quite a big difference
14 there why, I think, the accounting liability is only 1.35
15 billion compared to the total 4.25 billion of those
16 liabilities. So let me explain --
17 Q. Can I just ask you a math question before you provide that
18 explanation? You have a 1.35 in your formula, but when we turn
19 to the spreadsheet that's attached, there is a bonus accrual
20 line, line 29, which lists a 1.3 billion dollar number there.
21 Do you see that?
22 A. Yes, I --
23 Q. As far as I can tell, I don't see any line item for
24 assumed liabilities relating to cure unless it's described by
25 something else on that spreadsheet?

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1 A. No. I think this 1.35 accounting liability was the latest
2 estimate of what the bonus payable was. It's obviously changed
3 from the attachment here in terms of its -- I'm trying to look
4 at the timing of when I got sent the attachment to when I sent
5 it on. But let -- let me just --
6 Q. Can I just ask one last math question before you go to
7 your explanation?
8 A. Yes, sir.
9 Q. So if I understand the math, then, correctly, you have the
10 assumed liabilities stated on certain schedules of 2.25 and 2
11 for a total of 4.25 --
12 A. Yes.
13 Q. -- and what you're subtracting from that is the comp
14 accrual, the accounting issue that you're talking about. But
15 you're not subtracting anything in that formula for any assumed
16 cure liability, correct?
17 A. In terms of getting to my accounting, day-one acquisition
18 balance sheet, that's correct.
19 Q. And that gives you --
20 A. And I --
21 Q. -- and that gives you a number of 2.9 billion as your
22 negative goodwill based on that formulation that the amount
23 that you would actually accrue is less than the stated amounts
24 of 4.25.
25 A. Which is what I was trying to explain. So if I can

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1 explain that? And let me go through the two components of it.
2 So for the cure liability, the 2.25 billion, at the time, our
3 understanding was first of all, what did we expect to spend.
4 And the only information at this time, as I said earlier, was
5 we got from Lehman an estimate of 2.25 billion. We hadn't done
6 any detailed work. So we didn't know what we were going to
7 spend at all. We hadn't started doing the supplier review and
8 the supplier work.
9 What we thought, though, in terms of the accounting
10 liability, we thought from a day-one account, because the
11 wording in the asset purchase agreement, in the document, said
12 that on a supplier-by-supplier level, there was an optionality
13 about whether we had to pay cure, we thought we couldn't
14 recognize that as an accounting liability in day one. So in
15 the acquisition balance sheet, we couldn't recognize any
16 liability.
17 But what we thought is, as we agreed to pay cure to
18 suppliers, as we went through that process, the cost of that
19 cure would go through our earnings, so through our accounting
20 P&L. So, as I said, we hadn't done any work to know what the
21 cure was. But if a cure had been the whole 2.25 billion, our
22 expectation at that time, so we were going to spend 2.25
23 billion, would be all of that 2.25 billion spend would be a
24 spend through our earnings. And in the day-one acquisition, we
25 would show a gain, but then we show a charge going through our

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1 earnings.
2 Q. But you had no expectation throughout any of this process
3 during the week of the 15th through the 22nd, that you would be
4 assuming and actually incurring cure obligations anywhere near
5 2.25 billion, correct?
6 A. As I said, it's quite -- it's incorrect. As I said, we
7 hadn't done any of the detailed work. What we had was a number
8 from Lehman of 2.25, which on the Friday dropped to 1.5. We
9 only got the detail about the -- all of the supply -- there
10 were thousands of supplier contracts we're talking about here.
11 You had to go through each supplier contract. We had taken the
12 North American business, a huge business, on. You had to go
13 through all the supplier contracts to work out what you would
14 need to support that business.
15 We then had to look at the contracts we had within
16 Barclays to say, did we have contracts with the same suppliers?
17 Did we have the same service? For example, if one of those
18 supplier contracts was a network link between the US and the
19 UK, probably in Barclays we would have that supply already.
20 We'd have that service already. So then, would we want to cure
21 that supplier, because we need that service? Probably not, in
22 that case, if we'd already had that service.
23 So all of that work, which was a significant amount of
24 work, and took at least a couple of months plus to complete --
25 actually, we didn't complete it until 2009 -- hadn't been done

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1 at this point. All that we had was an estimate from Lehman of
2 2.25 billion. So what we were going to spend, I didn't know.
3 I didn't have a clue. So what I did think was in terms of my
4 accounting, in my day-one acquisition balance sheet, I wasn't
5 going to have to show a liability. But in terms of my spend, I
6 didn't know what that was at that time.
7 Q. And applying all the principles of conservatism we talked
8 about in this very tumultuous period, for purposes of
9 calculating your negative goodwill, you assigned a zero for
10 that formula that you just did, correct?
11 A. So, what I said, for accounting, because --
12 Q. Can you answer my question? You had a zero in there for
13 that liability?
14 A. I had a zero in it, because as I said, in the document I
15 read it as optional, and therefore I thought I wasn't able to
16 set off a liability. So accounting has rules on what you can
17 and can't do. And I didn't think I'd be allowed to set off a
18 liability, because accounting rules wouldn't let me say that I
19 had a liability on day one. So that was my understanding at
20 that time.
21 Q. Eventually, the total amount that was incurred by Barclays
22 for cure was about 220 million dollars. Is that right?
23 A. Yeah, I think it was about 250, that sort of size.
24 Q. It's not above 500 million, it's not above a billion,
25 correct?

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1 A. Yeah. So after --
2 Q. Is that right?
3 A. -- as I said, after the months of work, and going through
4 the contracts, and taking out all the duplications, I think
5 that was the number we came to. But at this point in time, we
6 hadn't done any of that work, we hadn't received any of the
7 detail, so we didn't know what we were going to spend.
8 Q. And the estimates, in fact, that you had during the week
9 of the 15th to the 22nd, were estimates that you were plugging
10 into your balance sheets, about 140 million dollars, correct?
11 A. No, the estimates we had -- I think I've told you the
12 estimates we had. We had a 2.25 billion estimate from Lehman
13 and a 1.5 billion estimate from Lehman. I think there's one
14 other number which you may be confusing with that which was,
15 there was some critical day-one contracts. So a subsection of
16 the total supplier contracts were critical day-one contracts
17 which we needed to be in place at the time of the closing. So
18 we said the business would fall over if those weren't in place
19 on day one.
20 And I think there was a list which -- of those which was
21 submitted to the Court on Friday which I thought came to about
22 200 million or something less than 200 million. But that --
23 that list wasn't all of the supplier contracts. It was just
24 the critical day-one contracts we needed to keep the business
25 running over the weekend and into Monday.

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1 Q. So if I understand all of this testimony then, through the
2 week of the 15th to the 22nd, you don't have an estimate of
3 what you are going to incur in terms of cure liability from the
4 Barclays side. Is that fair?
5 A. Is that what I said?
6 Q. You haven't done those calculations?
7 A. The only estimates we had with the figures we had from
8 Lehman --
9 Q. And you had received figures from Lehman and you used
10 those figures, correct?
12 Q. And you know those figures were submitted to the Court,
13 correct?
14 A. That's -- yes.
15 Q. You know that?
16 A. Yeah, I was aware.
17 Q. And those figures were used as a component for the
18 consideration for this transaction. Do you understand that?
19 A. Yeah, I understand in the agreement we took on various
20 assets, we assumed various liabilities, and those were some of
21 the liabilities we assumed, yes. That's correct.
22 Q. Did you believe that any part of the 1.5 billion that
23 Lehman was suggesting as an estimate were costs that you
24 actually expected to incur? Had you made that decision at any
25 point during the week of the 15th through the 22nd?

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1 A. I think, as I said earlier, we didn't have the ability to
2 make that decision, because we hadn't seen the data, so we
3 hadn't got the data, so we didn't know what we were going to
4 incur and what we weren't going to incur.
5 Q. And to the extent you had to record any assumed liability
6 for cure, that would have reduced your negative goodwill,
7 correct?
8 A. No -- well, I think at that point, as I said, in terms of
9 the accounting, I didn't think that -- because of the way the
10 documents were written, I didn't think we could recognize any
11 accounting liability in our day-one acquisition balance sheet.
12 So whatever we paid for cure, I thought, would be a charge
13 which would go through our earnings, subsequent to doing the
14 deal.
15 Q. Going back to the attachment to 135. You have an item
16 there, again, for nonfinancial assets of 1.5 billion. Do you
17 see that?
19 Q. And again, as far as you know, that component was never
20 conveyed to the Court, that there was a nonfinancial assets
21 category of 1.5 billion. Is that right?
22 A. I think that's -- looks like a summing to me, summing the
23 Seventh Avenue building and the data center building -- the one
24 billion for Seventh Avenue and the 500 million for the data
25 centers, summing to 1.5 billion. And I think that amount was

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1 conveyed to the Court, was my understanding.
2 Q. So the 1.2 billion that you had earlier on for
3 nonfinancial centers that was separate from the Seventh Avenue
4 item, that item had now simply dropped out of your acquisition
5 summary?
6 A. Yes. And as I said, I think as we were going through and
7 trying to fine tune things, Gary, who was doing this work, you
8 know, was updating it based on his latest understanding, and
9 his latest understanding was, we shouldn't reflect that number,
10 so he took it out.
11 Q. And that, too, had an impact on your negative goodwill
12 calculation, correct?
13 A. Well, the negative goodwill is a balance of the assets and
14 liabilities, yes. So anything that goes into that would have
15 an effect on the balance.
16 Q. Now, earlier we had this discussion about the comp accrual
17 and the bonus payment. And if you can turn to Exhibit 24 in
18 your binder. That's an e-mail --
19 MR. TAMBE: This is admitted in evidence, Your Honor.
20 Q. This is an e-mail exchange between you and Michael Evans,
21 Rich Ricci. Do you see that?
23 Q. All right. And this is in the middle of the week,
24 Wednesday, September 17th. Do you see that?

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1 Q. And you title your e-mail "650 million dollar problem"?
2 A. That's correct. Yeah, I see.
3 Q. Because you have now discovered, in the course of your
4 work, that as opposed to 1.35 you're going to have to record
5 2.0 billion on your first-day acquisition balance sheet,
6 correct?
7 A. So --
8 Q. Is that right?
9 A. -- so -- that is correct. But let me just explain that so
10 we're clear.
11 Q. I think you've explained it a couple of times already.
12 A. Well, I just wanted to reiterate it, just to make sure
13 there wasn't any confusion.
14 Q. I don't think there is any confusion.
15 A. So we had -- I thought we had an estimated two billion
16 total liability we were going to take on. Some of that two
17 billion, we had a name-by-name list of what we were paying
18 people, which I thought I had to reflect in my opening balance
19 sheet on day one. There was some of it, about 650, where we
20 didn't have a name-by-name list, which I thought was going to
21 be bonus for the other people or severance for the other
22 people, if there ended up being people we didn't need. I
23 thought that 650 million, which would get charged against our
24 earnings but not against our day-one, so it wouldn't be part of
25 our negative goodwill calculation.

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1 Now, when I read the documents here, and the documents
2 cross-referred to another document which said the amount was
3 two billion, it appeared that we had a contractual liability
4 for two billion in total, which meant I had to show the whole
5 two billion on my acquisition balance sheet. So though the
6 amount I was going to pay wouldn't change, what happened is
7 that was going to go into my acquisition balance sheet, so it
8 would reduce my negative goodwill. So I have a lower charge
9 for earnings, but I'd have lower negative goodwill. And my
10 negative goodwill would fall by 650 million, which is the
11 problem which I mentioned here.
12 Q. In your e-mail to Michael Evans and Rich Ricci, you say,
13 "I was relying on you guys telling me I needed 1.35 billion,
14 which gave me the 650 million off the goodwill." Do you see
15 that?
17 Q. And in fact, had Mr. Ricci told you that you needed only
18 the 1.35 billion, which helped you calculate the 650 million --
19 A. Yes, I --
20 Q. -- off the goodwill?
21 A. -- I think -- I think I probably got that from Rich Ricci,
22 who would have got the data from Michael Evans, who, as I said
23 earlier, was working with the Lehman HR department to work out
24 what the contractual bonuses were going to be.
25 Q. And you see the response from Mr. Ricci further up in that

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1 e-mail to you, where in fact he tells you, "Never agreed to
2 it." Do you see that?
3 A. That's true, yes.
4 Q. All right. And he says, "Never agreed to it. Archie,
5 this is the problem." He's referring to Archie Cox, correct?
6 A. Yes.
7 Q. And who's Archie Cox?
8 A. Archie Cox was one of our negotiators.
9 Q. And Rich Ricci, at that point says, "We can't have this
10 clause, I don't think." Do you see that?
12 Q. Did you have any discussions with Mr. Ricci as to
13 whether -- as to the fact that it had never been agreed to --
14 the clause that you were pointing out had never been agreed to?
15 A. Yes, I did have discussions with Mr. Ricci, and I had
16 discussions with Archie Cox as well to try and work out, you
17 know, how this clause had got into the document.
18 Q. Right. Because you were trying real hard not to have to
19 report the 2.0 as assumed liabilities in your acquisition
20 balance sheet. You needed the 650 million of negative
21 goodwill, correct?
22 A. Yes. So, as I said earlier, I thought, in my acquisition
23 balance sheet, I was assuming we had 1.35 of contractual
24 bonuses to charge, and 650 would cover the other bonuses and
25 the severance costs for the other staff, so, yeah. So this was

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1 different from my understanding.
2 Q. And that was about the terms of what you recorded in your
3 acquisition balance sheet, you recorded 1.55, correct?
4 A. No, we ended up recording two billion or very close to two
5 billion on our acquisition balance sheet, was our final
6 position.
7 Q. But you included in that not just bonus, but also
8 severance, correct?
9 A. Yeah. So we included the bonus and the severance of the
10 relevant staff.
11 Q. As you go through the week, and the transaction moves from
12 Lehman II to Lehman III, what is your understanding of what
13 resulted in that transaction moving from the formulation that
14 it had at the beginning of the week, the Lehman II formulation,
15 to ultimately what got transacted at the end of the week?
16 A. I think, as I said earlier, my understanding was the risk
17 of the transaction had dramatically increased, and for two
18 different reasons. One, we had had an offsetting for the long
19 and short positions we were taking on. And that was no longer
20 the case. We now just had some naked long positions, so we had
21 a huge long inventory position. And the second reason was,
22 beforehand we'd been able to do some due diligence, have
23 negotiations, understanding what the assets were, knowing that
24 we had the fair marked values. Some of the assets in the later
25 transaction, we hadn't seen before, so we hadn't been able to

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1 work out what the fair value of those assets was.
2 Q. You learned towards the end of the week, the 19th --
3 Friday the 19th in particular, that the traders at Barclays had
4 done an analysis of the assets that had come over as part of
5 the Fed repo, correct?
6 A. It was completely hectic around that time. So I know they
7 were getting some information, they were trying to do some
8 work. I -- my recollection is that they hadn't got everything
9 by that time. But I know they were -- they were running
10 around, I mean, there were -- I can't remember exactly, but I
11 think, tens of thousands of different securities in that Fed
12 repo. So they were trying to go through and get some feeling
13 of what the value of them was. I don't think they were able to
14 do it all in a day.
15 Q. Right. And people had expressed to you concerns about the
16 nature of the securities that were coming over and the value of
17 the securities that were coming over. Is that right?
19 Q. And to the extent the value of the securities was less
20 than what Barclays expected, that too would affect your
21 negative goodwill calculation, correct?
22 A. The big issue we had is we paid forty-five billion dollars
23 of cash, but over to the Fed the day before. And then we were
24 getting securities from the Fed, which we were relying on, I
25 suppose, being at least worth forty-five billion. Our great

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1 concern was, as we were getting this information in dribs and
2 drabs and seeing these were securities we'd never seen before,
3 some of them were incredibly illiquid. Some of these
4 securities were securities which Lehman had created and
5 packaged in the Fed for the purposes of getting financing. So
6 these securities had never been traded in any way in the
7 market. They were one-off things Lehman had created, put into
8 the Fed to get financing.
9 So we saw these coming back, trying to work out what on
10 earth are they worth. We'd paid forty-five billion dollars of
11 cash. We didn't know if we'd got forty-five billion dollars of
12 assets.
13 Q. So the answer to my question is yes? The concerns you had
14 related also to the negative goodwill calculation result --
15 A. Yeah, so --
16 Q. -- of getting these assets back --
17 A. -- so --
18 Q. -- is it a yes -- it's a yes or no question.
19 A. -- so we had huge concerns we wouldn't have negative
20 goodwill --
21 Q. Yes.
22 A. -- we'd have huge positive goodwill, for example. We'd
23 make a huge loss on the transaction.
24 Q. And people were reporting to you what they believed the
25 values were off the collateral that was coming back and that

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1 they were evaluating the Fed repo collateral, correct?
2 A. So --
3 Q. Is that a yes?
4 A. -- the traders who were putting this -- sorry. The
5 traders weren't reporting to me. I just wanted to caveat what
6 you said.
7 Q. They were providing you with information, were they not,
8 sir?
9 A. So the traders were providing --
10 Q. Sir, were they providing you with information?
11 A. They were providing to me and to Rich Ricci. But because
12 I was in London, I wasn't getting all of the information --
13 Q. But you got, for example, on the morning of the 19th, a
14 detailed rundown off an analysis of the Fed repo collateral
15 with a haircut summary. Do you remember that, sir?
16 A. Yes. Again, I got a lot of different analyses, but I'm --
17 I'm sure you're correct in what you say.
18 Q. And you have an understanding, do you not, sir, as a CFO
19 of Barclays Capital, of what a haircut is in the context of a
20 repo?
21 A. Um --
22 Q. Yes?
23 A. -- yes, I do. Yes, I do.
24 Q. And when a lender lends money and gets collateral in
25 exchange, the lender's going to ask for or demand more

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1 collateral than the value of the loan, correct?
2 A. More collateral than the value of the security --
3 Q. Than the value of the --
4 A. -- in the case of a repo, yes.
5 Q. So lend 100 dollars, get 110 dollars worth of securities?
6 A. Yeah, so the haircut is normally in place on the value of
7 the security. So you'd value the security, and then you'd have
8 a haircut of a certain percentage based on that value of that
9 security.
10 Q. And the idea behind the haircut is that if the lender does
11 not get its money repaid in the repurchase transaction, if the
12 loan is not paid back, the lender can liquidate the securities
13 and be fully covered, correct?
15 Q. Could you turn in your book to Movant's Exhibit 45,
16 please?
17 MR. TAMBE: And that document, too, Your Honor, has
18 admitted in evidence.
19 Q. Do you have it there, sir?
20 A. I do, yes.
21 Q. And you'll see that's an e-mail from Jason Yang to you.
22 Do you see that?
23 A. Yes, I do.
24 Q. And Jason Yang, according to the signature block, is in
25 the PMTG -- the principal mortgage trading group -- do you see

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1 that?
2 A. Yes.
3 Q. That was Mr. King's group?
4 A. Yes. So he worked -- worked for Stephen King.
5 Q. Okay. And Mr. King is copied on there. And he attaches a
6 filed called "Haircut summary 9/19/2008.xls. Do you see that?
8 Q. And if you turn the page to page 2, there's a copy of that
9 haircut summary?
10 A. Yes, I can see.
11 Q. Now, you forward that haircut summary to Mr. Clackson, do
12 you see that, on page 1 -- I'm sorry, to Mr. Ricci?
14 Q. Okay. Looking at the haircut summary, what you have on
15 there is a spreadsheet, do you agree with me, that has the long
16 positions with parentheses reflecting the Fed facility? Do you
17 see that?
19 Q. And the long positions add up to 50.64. Do you see that?
21 Q. And then there's a series of haircuts that appear in
22 Column D. Do you see those?
23 A. Yeah, I do.
24 Q. And those are the haircuts we just talked about, right?
25 A. Yeah. And I'm not sure that's what those haircuts are.

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1 You may be correct. But haircuts are normal to any repo.
2 Q. You have no reason to believe these aren't the normal
3 haircuts in the repo transaction, do you, sir?
4 A. Well, partly the reason why I'm saying that is the CDO
5 equity, you can see, showing here a haircut of a hundred
6 percent. It would be strange to repo something to get cash but
7 have a haircut of a hundred percent, because that means you
8 wouldn't get any cash. So that's the only question I'd have on
9 this document.
10 Q. Well, is it your belief, then, sir, that these are haircut
11 numbers provided by Barclays against those assets?
12 A. So I don't know precisely what they were in terms of what
13 these haircuts were. I think in terms of what this document
14 was at the time was the first view we had of what's the
15 approximate composition of the assets we're getting from the
16 Fed. So the column we were looking at was this Lehman market
17 value column in terms of that's the approximate composition of
18 what we're getting. I -- in terms of the two columns to the
19 right, I'm not sure what those mean.
20 Q. And the 50.64 number, sir, do you have an understanding as
21 to what the number was?
22 A. Well, you can see in the column, it says "Lehman market
23 value" at the top. But -- so I think that that was a value
24 which they put on those. I don't know the source of where that
25 value came from.

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1 Q. In the course of the work that you have done in connection
2 with the Lehman-Barclays transaction, do you know what value
3 the Fed -- the Federal Reserve -- ascribed to those assets as
4 of Wednesday night, the 17th of September?
5 A. No, I don't think I know.
6 Q. Do you believe it to be more or less than 50.64?
7 A. I don’t know. I don't know if I'd ascribe --
8 Q. You don't know one way or the other?
9 A. As I said, I was in London, yeah, and I wasn't involved in
10 the detail of this stuff, so.
11 Q. In any event, you get this spreadsheet from Mr. Yang and
12 you forward it on to Rich Ricci?
13 A. Right.
14 Q. Do you remember having any discussions with Mr. Ricci
15 about this spreadsheet?
16 A. As I said earlier, I think what the thing was we were
17 trying to work out -- as I said, we didn't know what we were
18 getting. Some of these things we hadn't seen. I think this
19 was our first view, which is why Jason sent it over. These are
20 the assets which we were getting from the Fed. You can see
21 this is pretty high level into sort of generic asset classes.
22 So I think that's a conversation we had with Rich. Clearly at
23 the time, I don’t think we'd done anything in terms of trying
24 to work out what are the market values, what's a fair market
25 value of these different categories.

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1 Q. Do you know what Mr. Ricci did with this document, if
2 anything?
3 A. I don't know.
4 Q. Did he ever discuss with you whether he sent it over to
5 anyone at Lehman Brothers?
6 A. No, I don't remember having that discussion.
7 Q. Okay. Did you have any discussion with Mr. Ricci in light
8 of this document, as to whether Barclays would demand
9 additional assets to cover what you perceived to be a shortfall
10 in value?
11 A. You're saying this was sent on Friday morning, is that
12 right?
13 Q. That's what the e-mails say, sir.
14 A. I -- I remember being woken up -- I think it was like
15 Thursday night in the UK in the middle of the night, shaken
16 awake. And there was a conference call where I was down in the
17 conference call, and people were incredibly nervous that we've
18 paid this cash across, we were getting these assets we didn't
19 understand, and that we could have a huge loss on this
20 transaction. You know, we weren't able to quantify exactly
21 what we got. So at that time, there was talk about what else
22 could we do to protect Barclays, because we were extremely
23 frightened at that time. So I was woken up to down into this
24 course to see if I could help. I wasn't able to be of much
25 help.

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1 Q. And is it your understanding, sir, that this e-mail, this
2 summary prepared by Mr. Yang -- Jason Yang -- was in response
3 or as a result of that conference call that you had late night
4 Thursday into early Friday?
5 A. Yeah. I can't remember how this came. But you asked me
6 did I remember having conversation about additional assets.
7 That was almost Thursday night rather than subsequent to
8 getting this e-mail, is my recollection.
9 Q. Just so I understanding your testimony, then. You have an
10 e-mail -- you have a phone conference Thursday night to Friday
11 where there were concerns expressed about the collateral. You
12 get this haircut summary from Mr. Yang which you forward on to
13 Mr. Ricci. And you have a general understanding that there are
14 efforts being made to identify additional value that Lehman is
15 providing to Barclays. Is that right?
16 A. That's correct. And there were also efforts to try and
17 work out what the value of these assets and securities we'd
18 taken on were, because, as I said, there were thousands of
19 different lines of -- in many cases, you can see if you look at
20 the categories, there are quite a lot of complex securities
21 which we were trying to work out what they were.
22 Q. Did you play any --
23 A. What they were worth.
24 Q. -- did you play any role in connection with any of the
25 efforts on Friday to identify and transfer over to Barclays

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1 additional securities from Lehman?
2 A. I -- as I said, I was in London. I wasn't in New York. I
3 probably attended various conference calls and things, but I
4 don't think I was specifically involved in any of that. So the
5 people who have a better understanding would be people who were
6 in New York at the time.
7 Q. You were not on the phone with any folks from Lehman
8 talking about additional assets to be identified, were you,
9 sir?
10 A. I think on one of the conference calls I was on, I think
11 Mr. Tonucci may have been one of the people at the other end.
12 That's my recollection. I can't remember if other -- I think
13 Mr. Lowitt could have been as well. I'm not quite sure. It's
14 dialing in to a room full of people and you were -- I wasn't
15 told everyone who was there.
16 Q. And the calls that you remember Mr. Tonucci and Mr. Lowitt
17 being on, that was a call discussing the identification of
18 additional assets to be transferred over?
19 A. Yes.
20 Q. Is that right?
22 Q. Other than Mr. Tonucci and Mr. Lowitt, do you recall any
23 other Lehman folks being on the call?
24 A. I can't recall that.
25 Q. And as a result of those calls and those efforts on

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1 Friday, is it your understanding that assets were identified
2 and transferred over to Barclays, sir?
3 A. I think, as a result of that, there were some assets which
4 were in Lehman Brothers Inc. and which were included in a
5 clarification letter, to make it clear that those assets were
6 part of the transaction and would be transferred to Barclays.
7 That's my understanding.
8 Q. The Fed repo collateral had been -- the transfer of the
9 Fed repo collateral had begun on Thursday the 18th of
10 September, correct?
11 A. Yes. That was my understanding. It happened in dribs and
12 drabs.
13 Q. Okay. And you understanding is, when the music stopped, a
14 certain amount of the collateral had moved over, but there was
15 a certain quantity of collateral that had not moved over
16 correct?
17 A. Yes, that's right.
18 Q. And there was roughly seven billion dollars of shortfall.
19 Is that right?
20 A. Yeah, there was, I think, seven billion dollars of cash
21 which was due to come across which didn't come across.
22 Q. And that was cash that was being held by JPMorgan. Is
23 that right?
25 Q. Now, at the -- during the day on Friday, September 19th,

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1 were you assessing what the total value was of Fed repo assets,
2 the cash and the other assets that had been identified to be
3 turned over to Barclays as part of the transaction?
4 A. Yes. So we had a number of people in New York trying to
5 work out what the value was. I think, at that time, as I said,
6 there were thousands of positions -- so I don’t think they were
7 able to finalize an assessment, but they were trying to -- they
8 were doing that work.
9 Q. If you could turn in your book to Tab M-47, Movant's 47.
10 And you'll see there's an e-mail from Gerry --
11 MR. TAMBE: This document, too, is in evidence, Your
12 Honor.
13 Q. This is an e-mail from Gerry LaRocca to Mike Keegan. Do
14 you see that at the top?
16 Q. And it's forwarding an e-mail in a summary of sorts. Do
17 you see that?
18 A. Yes.
19 Q. And according to that summary, the total securities and
20 cash received are in the amount of 52.19 billion. Do you see
21 that?
22 A. Yes, I do.
23 Q. And the repo cash amount is shown down there of forty-five
24 billion. Do you see that?

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1 Q. And the excess collateral, according to that calculation,
2 is 7.19 billion?
4 Q. For a margin of fourteen percent?
5 A. Yes.
6 Q. And that information was later incorporated into a balance
7 sheet that was in the process of being prepared over the
8 weekend, correct?
9 A. Yes. As we were getting more detail, we were trying to
10 update our position of what the assets and liabilities we were
11 acquiring. And obviously, in terms of this e-mail, I wasn't
12 copied in it, and you know, I haven't got any recollection of
13 seeing it.
14 Q. If you can turn in your book to Exhibit 234, Movant's 234.
15 MR. TAMBE: And this document, too, is admitted in
16 evidence, Your Honor.
17 Q. This is an e-mail, you see at the top, from Gary Romain to
18 James Walker and others. Do you see that?
20 Q. And it attaches a balance sheet. Do you see that?
21 A. Yes.
22 Q. And it says "Long Island acquisition summary." And you'll
23 see, under "Financial assets", 52.19.
24 A. Sorry, you're talking about the attachment here, right?
25 Q. I’m talking about the attachment, yes. Do you see that

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1 number there?
3 Q. And that's the same number that appears in M-47, correct?
4 Movant's 47?
5 A. I'd have to get it back and check.
6 Q. Please do.
7 A. Yes, you're correct, the numbers are the same. But as I
8 said, I hadn't seen that, so I don't know -- I don't know if
9 that is the same thing or coincidentally the same, but the
10 number's the same.
11 Q. Well, this document, Exhibit 234, you recognize this as an
12 e-mail with an attachment, and it's from Gary Romain --
13 A. Yes.
14 Q. -- who reports to you, correct?
15 A. Yes.
16 Q. Right. And you rely on him for being accurate and
17 complete, correct?
19 Q. And it's a document that he's prepared, correct?
20 A. Yes, this is a document Gary put together. And Gary
21 hasn't copied me on this draft, but there were many drafts, as
22 you know.
23 Q. Now, we've had a lot of discussion today about assumed
24 liabilities for cure and bonus and the fact that those numbers
25 were moving. But if you look in Gary Romain's schedule here,

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1 this balance sheet attached to his September 20th e-mail, he's
2 listing cure payment of 2.25 and bonus accrual at 2.0. Do you
3 see that?
5 Q. Do you have any explanation as to why he's listing those
6 at those full amounts, notwithstanding all the explanations
7 you've provided us about accounting policies and how you
8 believed these would be accounted for?
9 A. Yeah. And --
10 Q. Do you have an explanation, sir?
11 A. -- my explanation is that -- what I said earlier, that
12 early in the week, we didn't think we were going to have to
13 account for these. I think, at this point, so this is by
14 Saturday afternoon, Gary, in terms of doing his work, has got
15 to decide a position. There are later versions of this balance
16 sheet where he's added a footnote to it. And in those
17 footnotes he makes it clear that these are still provisional
18 numbers. But, you know, this is the latest position as of that
19 Saturday that Gary thought at that point in time that these
20 would be liabilities I'd have to recognize.
21 And you can see here, for example, in the cure payment,
22 he's showing the 2.25 billion, which, as I said earlier, we had
23 no better information and data. Now, I think we talked about
24 earlier as well, the cure payment was 1.5 billion presented to
25 the Court on Friday. So the fact that on Saturday Gary was

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1 here still showing 2.25, I think just shows you that given the
2 speed of the deal, the data wasn't flowing down. So he's still
3 using the earlier estimate here from Lehman.
4 Q. With respect to the 1.5 that was presented to the Court on
5 Friday, do you recall having any discussions with anyone at
6 Lehman about Barclays' views on estimates that Barclays
7 believed that it would really incur as of the closing date or
8 subsequent to the closing date, with respect to cure payments.
9 A. I don't -- I don't think I had any conversations with
10 anyone at Lehman about cure --
11 Q. And are you --
12 A. -- before the deal would close.
13 Q. -- and are you aware of anyone else at Barclays having had
14 such discussions? You said you didn't have such discussions.
15 A. Yeah. So the negotiators -- so Archie Cox and Michael
16 Klein, who were dealing in negotiations, obviously in those
17 negotiations, they must have had discussions about the amounts
18 for cure. So they must have had discussions there.
19 Q. So your understanding is that Archie Cox and others --
20 Michael Klein, would have conveyed --
21 A. Yeah.
22 Q. -- to Lehman, Barclays views of the estimated cure
23 liabilities?
24 A. Well, we didn't have any views, as I said about the cure
25 liabilities. They would have had conversations as part of the

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1 negotiations. I'm not aware of anyone else who'd had
2 conversations with Lehman about the cure liabilities, apart
3 from -- I think, as I've said, we were trying to get the
4 underlying data so we could do our work. And I'm aware we
5 started to get that underlying data over the weekend. So
6 people at some level must have been talking to people about
7 getting the supplier contracts, etcetera.
8 Q. But you are aware of no discussions where either Archie
9 Cox or Michael Klein or anyone else from Barclays tried to
10 dissuade Lehman from assigning a 1.5 billion dollar number for
11 cure liabilities to be assumed by Barclays. Is that right?
12 A. Yeah. I'm not aware of that. Yeah, you'd have to speak
13 to them.
14 Q. And you are not aware of any court submissions made by
15 Barclays expressing a different view as to the extent and
16 nature of the cure liabilities. I that right?
17 A. I'm not aware of any. And I think as I said earlier, we
18 didn't have a different view. We hadn't done any work, so we
19 didn't know what the liabilities would be.
20 Q. If you'd turn over to Movant's 74, please.
21 (Pause)
22 MR. TAMBE: Your Honor, there is no objection to this
23 document.
24 THE COURT: Okay. Has it been admitted already? I'm
25 seeing somebody on your team nodding yes, so, apparently it's

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1 already in.
2 Q. Turning your attention to Exhibit 74, it's a two-page
3 document from Robert Azerad. Do you see that?
5 Q. And it's copied to several people at Barclays, including
6 Gary Romain. Do you see that?
8 Q. And what it attaches is an updated opening balance sheet.
9 Do you see that?
11 Q. And in this document, in the attachment, there is a
12 listing for equity in the amount of 3.38 billion. Do you see
13 that?
14 A. Yes.
15 Q. Do you recall having had any discussions with anyone from
16 Lehman about an equity component to the transaction, the Lehman
17 II transaction or the Lehman III transaction?
18 A. I can't remember ever seeing this document before, and you
19 know, I wouldn’t -- I don’t recall any conversation. I don't
20 really know what this means at all, so, no, I can't recall
21 anything.
22 Q. And as far as you know, sir, are you aware of any
23 disclosures being made to this Court about any equity component
24 in the Lehman II or the Lehman III transaction?
25 A. As I said, I have no understanding of this document at

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1 all, so no, I'm not aware of what happened -- where -- when --
2 whether it was correct or anything.
3 MR. TAMBE: If we could briefly take a break, Your
4 Honor, before I move on to a different topic?
5 THE COURT: That's fine. Can I -- frankly, I think a
6 break is a good idea for everyone. About how long do you think
7 you're going to be on this phase of the examination?
8 MR. TAMBE: I think we're about to get into some more
9 accounting issues. So perhaps an hour or so.
10 THE COURT: Well, if we're going to be perhaps an hour
11 or so on accounting issues, I'm thinking that we might want to
12 bring this witness back tomorrow morning.
13 MR. SCHILLER: I agree with that, Your Honor. This
14 gentleman's on UK time.
15 THE COURT: Because I thought we had about two hours
16 total, and we're just about at the two hour mark now. So for
17 my purposes, in terms of my ability to focus and do my job, I
18 think I would do that better if it were tomorrow morning, but
19 that will affect our schedule. And my suggestion is that we
20 resume tomorrow morning at 9:30.
21 MR. SCHILLER: Thank you very much.
22 MR. TAMBE: Thank you. Your Honor.
23 THE COURT: What I'd like to do, though, is use some
24 of this evening's time, before everybody goes home who's part
25 of our principal trial team, just to talk a little bit about

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1 scheduling issues, if people are ready to do that.
2 We have the issue of Mr. Varley on Friday the 7th,
3 which is still open. And it also occurs to me that we have
4 some scheduling issues for this week as well.
5 MR. SCHILLER: Your Honor the question of our
6 chairman's appearance has been resolved. My friend here has
7 kindly agreed that Mr. Varley may come in the second chapter of
8 this book and that they will read testimony of his. We will
9 read counter-designated testimony if appropriate, before Your
10 Honor, next Friday, if indeed they come to Mr. Varley. But he
11 has been excused from his appearance, so it's no longer an
12 issue for Your Honor.
13 THE COURT: All right. But it occurs to me that we
14 may have some other scheduling matters to address, simply
15 because, understandably, we're running a little bit behind the
16 schedule we'd allowed for ourselves.
17 MR. GAFFEY: There may be some good news on that
18 front, Your Honor, too, that has to do with a discussion I had
19 with Mr. Hume before. There's a slight change in the witness
20 lineup for tomorrow. And since Mr. Fogarty -- we're not going
21 to call Mr. Fogarty in this phase. So what we're looking at
22 tomorrow, I think, are Luc Despins, yes?
23 Well, we'll finish Mr. Clackson. Well, I'm not sure
24 about which order, and we can talk about that. I think Mr.
25 Despins is a third party, and then Mr. Hughes. Between all

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1 them that ought to fill the day. And I'm not too concerned
2 about the order. I just don't know Mr. Despins' schedule.
3 He's more oriented to the creditors' committee. But the point
4 is, with the elimination of Mr. Fogarty as a live witness -- as
5 an in-person witness -- we're sort of back on track, I think --
6 THE COURT: Okay.
7 MR. GAFFEY: -- toward Monday.
8 THE COURT: Fine. Well, then we don't have to have a
9 conference. We, in effect, had it. I'll see you tomorrow
10 morning at 9:30, then.
11 MR. GAFFEY: I'll bring an updated calendar with what
12 the witnesses look like now, Your Honor.
13 THE COURT: Very good. Thank you.
14 (Whereupon these proceedings were concluded at 5:55 p.m.)
15
16
17
18
19
20
21
22
23
24
25

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1 I N D E X
2
3 T E S T I M O N Y
4 WITNESS EXAM BY PAGE LINE
5 Ian Lowitt Mr. Gaffey 10 13
6 Ian Lowitt Mr. Hume 132 1
7 Ian Lowitt Mr. Gaffey 165 22
8 Ian Lowitt Mr. Hume 180 4
9 Patrick Clackson Mr. Tambe 184 8
10
11
12 E X H I B I T S
13 NO. DESCRIPTION ID. EVID.
14 M-56 E-mail stream between Mr. Lowitt 26
15 and Mr. Tonucci
16 M-25 E-mail chain originating with Mr. 102
17 Lowitt
18 BCI 46-A E-mail chain with spreadsheet 148
19 BCI 810 E-mail from Mr. Reilly to 181
20 Lowitt
21 BCI 486-A 181
22 M-702 E-mail from Mr. Clackson 228
23 to Mr. Ricci dated 9/17
24
25

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1
2 C E R T I F I C A T I O N
3
4 I, Lisa Bar-Leib, certify that the foregoing transcript is a
5 true and accurate record of the proceedings.

Digitally signed by Lisa Bar-Leib
6
Lisa Bar-Leib DN: cn=Lisa Bar-Leib, c=US
Reason: I am the author of this document
Date: 2010.05.03 16:05:51 -04'00'
7 ___________________________________
8 LISA BAR-LEIB
9 AAERT Certified Electronic Transcriber (CET**D-486)
10
11 Veritext
12 200 Old Country Road
13 Suite 580
14 Mineola, NY 11501
15
16 Date: May 3, 2010
17
18
19
20
21
22
23
24
25

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2010-04-29 Lehman Hearing Transcript

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1

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

Case Nos. 08-13555(JMP); 08-01420(JMP)(SIPA)

In the Matter of:

LEHMAN BROTHERS HOLDINGS INC., et al.

In the Matter of:

LEHMAN BROTHERS INC.

United States Bankruptcy Court

One Bowling Green

New York, New York

April 29, 2010

HON. JAMES M. PECK

U.S. BANKRUPTCY JUDGE

VERITEXT REPORTING COMPANY

3 Corporation in Support of Trustee's Motion for Relief Pursuant

4 to the Sale Orders or, Alternatively, For Certain Limited

5 Relief Under Rule 60(b)

8 Lehman Brothers Holdings Inc., James W. Giddens as Trustee for

9 Lehman Brothers Inc., and the Official Committee of Unsecured

10 Creditors of Lehman Brothers Holdings Inc. to Modify the

11 September 20, 2008 Sale Order and for Other Relief

14 Company in Support of the Motions for (I) an Order Modifying

17 Order (and Related SIPA Sale Order)

VERITEXT REPORTING COMPANY

3 Bank Of Tokyo-Mitsubishi UFJ, Ltd. and Lloyds TSB Bank, plc in

4 Connection with (I) Motions of Lehman Brothers Holdings, Inc.,

5 The Official Committee Of Unsecured Creditors, And James W.

6 Giddens, as Trustee For Lehman Brothers, Inc., for Certain

8 Motion of Barclays Capital Inc. to Enforce the Sale Orders and

9 Secure Delivery Of Undelivered Assets

12 Regarding Rule 60 Proceedings

15 Motion, (ii) the Committee's Motion; and (iii) LBHI's Motion

17 Limited Relief Under Rule 60(b); and (B) Objection to Barclays

18 Capital Inc.'s Motion to Enforce the Sale Order

21 LibertyView's: (A) Joinder to (i) the Trustees' Motion, (ii)

23 the Sale Orders or, Alternatively, for Certain Limited Relief

24 Under Rule 60(b); and (B) Objection to Barclays Capital Inc.'s

25 Motion to Enforce the Sale Order

VERITEXT REPORTING COMPANY

3 Sale Order and Granting Other Relief

6 Sale Orders or, Alternatively, for Certain Limited Relief Under

10 of Lehman Brothers Holdings Inc., Authorizing and Approving (a)

11 Sale of Purchased Assets Free and Clear of Liens and Other

12 Interests; and (b) Assumption and Assignment of Executory

13 Contracts and Unexpired Leases, Dated September 20, 2008 (and

14 Related SIPA Sale Order) and Joinder in Debtors and SIPA

15 Trustees' Motions for an Order Under Rule 60(b) to Modify Sale

19 Order and Secure Delivery of All Undelivered Assets

VERITEXT REPORTING COMPANY

4 Special Counsel for the Debtors

5 222 East 41st Street

6 New York, NY 10017

9 WILLIAM J. HINE, ESQ.

12 Special Counsel to the Official Committee of Unsecured

16 New York, NY 10010

19 JAMES C. TECCE, ESQ.

20 RICHARD I. WERDER, JR., ESQ.

VERITEXT REPORTING COMPANY

3 Special Counsel to the Official Committee of Unsecured

5 865 S. Figueroa St., 10th Floor

6 Los Angeles, CA 90017

11 Attorneys for the James W. Giddens, SIPA Trustee