Overstock objects to sale of Lehman

Overstock.com, based in Salt Lake City, has filed court papers asking U.S. Bankruptcy Judge James Peck in Manhattan not to allow Lehman Brothers Holdings Inc.'s broker-dealer unit to be sold to London-based Barclays Plc without a provision allowing lawsuits against Lehman to be transferred to Barclays.

Lehman, the U.S. investment bank holding company that filed the largest bankruptcy in history, faces several objections to a proposed $1.75 billion sale of its broker-dealer unit to Barclays. The objections are from various companies and hedge funds.

Overstock.com and Novastar Financial Inc., a mortgage broker based in Kansas City, Mo., fighting an involuntary bankruptcy, have both sued Lehman Brothers Inc. separately in Superior Court of California.

The objections by Overstock.com and Novastar, related to short-selling, came as Lehman's bankruptcy helped spark government probes into the practice, which has been temporarily banned by the SEC until next month.

New York Attorney General Andrew Cuomo is investigating short sales of New York-based Lehman shares, along with other financial firms including Morgan Stanley, Goldman Sachs Group Inc. and insurer American International Group Inc. Regulators and some executives claimed short sellers are making the subprime-related credit crisis worse by bringing down sturdy institutions.