McClatchy Washington Bureau

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In a twist to the turmoil engulfing Wall Street, dozens of NovaStar Financial shareholders are objecting to bankrupt Lehman Brothers Holdings' proposed $1.75 billion sale of its broker-dealer unit.

Lehman plans to sell the non-bankrupt unit, Lehman Brothers Inc., to the United Kingdom's Barclay's Plc in an all-cash transaction.

Two years ago, shareholders of Kansas City-based NovaStar sued 11 of the nation's largest securities firms, including Lehman Brothers Inc., in California state court, alleging the firms participated "in a massive, illegal stock market manipulation scheme" involving naked short-selling of NovaStar's stock.

A nearly identical suit was filed by Overstock.com, the Salt Lake City, Utah, online retailer.

Now the NovaStar shareholders and Overstock.com said Lehman Brothers Holdings was improperly seeking to use bankruptcy law to sell Lehman Brothers Inc. "free and clear of all liens," including their claims.

The shareholders and Overstock.com want the bankruptcy court to block the sale to Barclay's or, short of that, to make the sale contingent on Barclay's assumption of Lehman Brothers Inc.'s liabilities.

The objection was one of several filed to the proposed sale, including ones filed by hedge fund Harbinger Capital Partners and by Amber Capital, an investment manager of a Cayman Islands-based hedge fund. Lehman has argued that the sale must close quickly to calm the markets and guarantee the integrity of customer accounts.

Read the full story at KansasCity.com.