Attorneys for Lehman Brothers Holdings Inc and Barclays Plc sparred in court on Monday as they began a trial over whether the British bank received an improper $11.2 billion windfall from its takeover of Lehman's core U.S. brokerage in September 2008.

Lehman Brothers board member Michael Ainslie and former Lehman chief operating officer and president Herbert Bart McDade were the first to testify in the dispute, which focuses on whether Barclays should be forced to return assets to Lehman.

McDade, one of the chief architects of the hurried deal to sell Lehman's flagship brokerage in 2008, testified on Monday that the deal was the best at the time, but that he also understood then that the deal was not meant to have an embedded gain for Barclays on day one.

Lehman filed the largest bankruptcy in history on September 15, 2008, and less than a week later sold its flagship U.S. brokerage business to Barclays for about $1.85 billion.

But Lehman is now asking Judge James Peck of the U.S. bankruptcy court in Manhattan to make changes to the order that authorized the deal. Lehman said a new investigation revealed that the sale described to the court was not the sale actually executed.

Attorneys for Lehman claimed that Barclays received an $11.2 billion immediate windfall profit on the assets it acquired, while the court was told that the sale would actually give Lehman a benefit of about $4 billion in terms of reduced liabilities and cash.

Ainslie, who has served on Lehman's board since 1996, testified on Monday that he understood the deal would be a wash or break-even and that he did not remember hearing anything about an immediate profit for Barclays at the time.

It was a very simple deal in reality -- assets equal liabilities and that was very clear to me, Ainslie testified.

Many of the attorneys' questions focused on whether Lehman's marks, or the market values it put on its assets, could be believed at the time of the deal. Lehman has claimed that Barclays and Lehman employees secretly reduced the book value of Lehman's assets by $5 billion.

McDade testified, however, that Barclays and Lehman were simply trying to find a price they could agree on, during an unusual time for the markets.

It was the most unusual week in my 25 years of market experience, McDade testified, noting that valuations of Lehman's assets were changing wildly throughout the week. Clearly the valuation had to reflect the uncertainty at that time.

David Boies, an attorney representing Barclays, asked whether Lehman knew at the time that many of its asset values on the books were months old. Other attorneys asked if the $2.5 billion liability taken on by Barclays for Lehman's employees was an inflated number.

Judge Peck is not expected to make any decision on the dispute until at least September, as the trial is scheduled to occur in two phases.

Barclays President Bob Diamond is expected to take the stand later in the trial.

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

(Reporting by Emily Chasan and Caroline Humer; Editing by Steve Orlofsky)

Lehman brothers Barclays Sale