This is why everyone needs to be extremely careful about their brokerage, banking, counterparty and business relationships. What would a bankruptcy of any of these entities do to your finances? From Bloomberg:

Lehman Won’t Return Prime-Broker Assets for `Months’ (Update2)

By Tom Cahil

Sept. 22 (Bloomberg) — Lehman Brothers Holdings Inc. will take “considerable time” before it returns assets stranded by the world’s largest bankruptcy to hundreds of hedge fund clients, according to PricewaterhouseCoopers.

“Our current view is that this process could take several months to conclude,” PwC, Lehman’s bankruptcy administrator in London, said in a statement today.

GLG Partners Inc., a $24 billion hedge fund, and CQS U.K. LLP. are among those that used Lehman as a prime broker for borrowing stock and clearing trades. They may now join a line of creditors trying to recover money after Lehman filed Chapter 11 bankruptcy on Sept. 15 listing $639 billion of assets.

“There’s a short queue to recover assets and a long one,” said Jerome Lussan, founder of Laven Partners LLP, a hedge fund consultant and investor in London. “If your hedge fund assets have been included with Lehman’s, you’re in the back of a queue that’s quite long.”

Lehman had the right to lend prime-brokerage clients’ securities as collateral in the stock-loan and repurchasing markets, PwC said. Securities used for these purposes were mingled with Lehman’s, PwC said.

“The assets, once `used,’ were no longer held for the client on a segregated basis, and as a result the client may cease to have any proprietary interest in them,” PwC said in the statement.

Margin account holders at any institution should beware. Read about SIPC and assess your risk. Is margin really worth it?

Questionable Value

Hedge funds with assets tied up with Lehman probably will have to write down the value of those assets when they report net asset values to investors or restrict redemptions, Lussan said.

“What’s the market value of, say, $100 million that’s owed to you by Lehman?” he asked. “I’d say it’s not that great, and it’s going to have to be written down.”

Any hedge fund managers who allowed Lehman to lend out their securities were asking for a world of hurt, and in my opinion, were not qualified to handle other people’s money.