The trustee in charge of liquidating what's left of Lehman Brothers Holdings Inc's U.S. brokerage told a judge on Monday that Barclays Plc should return $2.1 billion it received when it bought Lehman's North American arm.

An attorney for trustee James Giddens said at a hearing in U.S. Bankruptcy Court in Manhattan that Barclays should also pay interest, countering arguments that the sum should be offset by liabilities that Barclays inherited in the deal.

Barclays told Judge James Peck that it inherited about $6 billion in liabilities when it agreed to take on Lehman's proprietary cash margin held at clearing houses. Even if that figure is offset by $5 billion in other assets related to the deal, a $1 billion offset is still in order, Barclays argued.

The trustee countered that any liabilities associated with the cash margin were already Barclays' responsibility by virtue of its agreement to buy the company, and should not be attributed to its agreement to take on the margin.

Barclays also said a portion of the margin was made up of government securities with long-term maturities and should not be considered part of the cash Peck ordered be repaid to Lehman.

The judge balked at that argument, chastising Barclays for failing to raise it at trial.

The issues surrounding margin are not really tied to the margin of government securities, Peck said. That seems to be a brand new argument by Barclays.

The judge held off on a final decision on whether Barclays' arguments are compelling enough to reverse an earlier ruling that Lehman is entitled to the margin.

Monday's hearing resulted from a request to the parties by Peck for their proposed interpretations of his order, which he issued in February.

Lehman's request for 9 percent interest on the $2.1 billion also went unresolved on Monday.

Lehman said interest should kick in retroactively to the time of the sale because Barclays should have known at the time it was taking on assets to which it was not entitled.

'CLEARANCE BOX'

Separately, the trustee agreed to pay Barclays Plc $1.1 billion in so-called clearance box assets -- money held to facilitate the clearance of securities trading.

Peck ruled in February that Barclays was entitled to the clearance box assets. However, the parties disputed whether Lehman would pay damages of $869 million -- the initial value of the assets -- or a higher figure representing the current value after appreciation.

While the sides agreed on a final figure of $1.1 billion, attorneys still found room for debate on what the figure represents.

An attorney for Giddens framed it as comprising the $869 million damages figure plus interest, while Barclays said it represented the appreciated value of the underlying assets. Peck made no ruling on that question when he approved the deal at Monday's hearing.

The trustee and Barclays have been tangled in litigation since November 2009, when Lehman sought unsuccessfully to invalidate its hurried sale to Barclays. Lehman said Barclays obtained an $11 billion windfall by leaving vital information out of the court record.

Peck's February order upheld the overall sale.

The $639 billion in assets listed by Lehman when it filed for bankruptcy was six times more than any other bankrupt U.S. company.

The company and two groups of creditors have proposed three competing plans to pay back creditors, with approval hearings before Peck set for June 28. If the plans pass muster there, they would be sent to creditors for a vote.

The case is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Editing by Ted Kerr)

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