Landmark UK ruling on Lehman pay-outs The UK's highest court has ruled that $2bn of client money held by Lehman Brothers should be divided among a much larger group of investors. The landmark judgment may lead to lower pay-outs to clients at MF Global UK and could also significantly change how client money is held at investment banks. Lehman Brothers International Europe (LBIE) failed to segregate much of its clients" money before it collapsed in September 2008, leading to a three-year court battle to determine how $2bn of client money should be distributed by Lehman's administrators. On Wednesday, the Supreme Court ruled that clients whose money had not been segregated at the time of the collapse could share in the pool of money alongside those clients whose money had been segregated by LBIE. By three justices to two, the court dismissed an appeal by the hedge fund GLG, which argued the funds should be only given to clients for whom LBIE had segregated the money by placing it into separate client accounts. Lord Clarke, another of the justices, ruled: "All these clients" funds would be unsegregated and, as I see it, they should be treated in the same way. Either they should all be treated as having money in the pool or none of them should be so treated. Lord Walker, one of the justices, said in the ruling that this decision "makes investment banking more of a lottery than even its fiercest critics have supposed." Lawyers say the ruling has wide-ranging implications for all financial institutions as well as having a direct bearing on pay-outs in the MF Global UK segregated client pool. KPMG, which is administering MF Global UK, warned there would be much smaller percentage pay-outs divided between a larger number of firms. There is now no due diligence that an investor can do to make sure its client money is safe. Even if the investor asks to see account statements to show that its client money is being segregated, it could find its own claims diluted by those less diligent investors who do not carry out such checks," warned Damian Carolan, regulatory partner at Allen & Overy, the law firm. Tony Lomas, joint administrator of LBIE and partner at PwC, said the ruling would delay any pay-outs to investors and added: "Alarmingly, we now seem to have less and not more clarity on the subject of who is entitled to client money protection and what funds comprise the client money pool." Lawyers predicted more litigation would flow from the court ruling as banks digested the implications. Jennifer Marshall, restructuring partner at Allen & Overy, said investment companies would face greater constraints on how client money would be held. "It's difficult for investment firms as the judgment does not tell them how and in what way they should do this."she said.