Lehman Can Keep Lender’s Funds

Lehman Bros. Holdings Inc. doesn’t have to return $83 million it collected as a creditor in First Alliance Corp.’s bankruptcy case, a federal judge in Orange County ruled last week.

U.S. District Judge David O. Carter denied a bid by the First Alliance bankruptcy trustee to force Lehman to return the money, which represented $77 million in loans plus interest. The trustee had argued that Lehman aided fraud at the now-defunct mortgage lender.

In June, a federal jury in Santa Ana found Lehman liable for helping Irvine-based First Alliance defraud customers and ordered it to pay $5.1 million. The verdict marked the first time a securities firm had been found liable for aiding fraud through business dealings with a predatory lender. The case by the bankruptcy trustee represented a larger potential claim.

“Lehman’s conduct was not a contributing factor to either bringing about the First Alliance bankruptcy or determining the ordering of creditors to the bankruptcy estate,” Carter wrote in his July 30 order.

Philip Steinbock, who represents the trustee, couldn’t be reached for comment.