Sep. 20--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.

A bankruptcy judge on Wednesday gave Lehman initial approval to sell key North American businesses to Barclays. The approval came just two days after the venerable investment firm filed the biggest bankruptcy in U.S. history.

The California suits filed by NovaStar shareholders and Overstock.com address a trading tactic that critics argue is susceptible to abuse and makes it difficult for small companies to raise capital.

The suits, which are pending, allege that Lehman Brothers and the other defendants in the actions control 83 percent of the prime brokerage market, which provides stock financing and lending services to hedge funds.

Prime brokers are supposed to deliver stock within three days of a short sale. Short sellers bet that a stock's price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.

When the prime broker fails to deliver the stock within three days of a short sale, the sale is known as a naked short sale.