Hedge funds have started the first of what is expected to be a series of legal actions against administrators of the main European arm of Lehman Brothers in an effort to recover $40bn of assets frozen when the business collapsed last week.

RAB Capital sued in the UK High Court this week demanding the return of $50m held by the failed bank on behalf of one of RAB's smaller hedge funds. RAB failed to accelerate the hearing of the case, which is being closely followed by many other funds owed money by Lehman, but is continuing with the action.

However, hedge funds may find they become general creditors of Lehman as PwC, the administrators, disclosed that they believed the bank's prime brokerage had used about $22bn of the collateral held in trades for its own cash-raising operations in a practice known as rehypothecation. This allows the prime broker to re-lend client securities held as collateral.