Preview Newsletter
Lehman 4/23
-
Lehman Lawyers Say Former Top Trader Seeks ‘Double Recovery’
Apr 22, 2015 | Wall Street Journal
By Joseph Checkler
Lehman Brothers on Wednesday said former top trader Jonathan Hoffman is seeking “double recovery” on his bonus from 2008, in day one of a trial over whether Lehman owes Mr. Hoffman and three other employees millions in back bonuses. -
Ch. 11 Judge Not Keen To Award Ex-Lehman Star $84M
Apr 22, 2015 | Law360
By Pete Brush
A Manhattan bankruptcy judge expressed skepticism Wednesday as former Lehman Brothers Inc. star trader Jonathan Hoffman, now of Barclays PLC after a fire-sale merger born of the 2008 market meltdown, insisted at a bench trial that the fallen financial giant owes $84 million per his employment arrangement. -
Barclays Wins Bid For $1.3M More In Lehman Asset Fight
Apr 22, 2015 | Law360
By Kat Greene
Barclays Capital Inc. won a tug-of-war with the trustee for bankrupt Lehman Brothers Inc. over $1.3 billion when a New York federal judge ruled Wednesday that the trustee’s bid to carve that cash out of the bank’s 2008 purchase of Lehman’s assets came too late.
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
Litigation News
Full Text of Stories Below
-
Lehman Lawyers Say Former Top Trader Seeks ‘Double Recovery’
Apr 22, 2015 | Wall Street Journal
By Joseph Checkler
Lehman Brothers on Wednesday said former top trader Jonathan Hoffman is seeking “double recovery” on his bonus from 2008, in day one of a trial over whether Lehman owes Mr. Hoffman and three other employees millions in back bonuses.
Mr. Hoffman, a former global rates trader who at the time of Lehman’s collapse was the bank’s third-highest paid rank-and-file employee, was paid an $84 million bonus by Barclays PLC, which bought Lehman’s brokerage in the days after the investment bank filed for bankruptcy, Lehman says.
A lawyer for Mr. Hoffman argued in court that it doesn’t matter that Barclays paid him a bonus. Since the bonus agreement with Barclays was separate from Mr. Hoffman’s Lehman contract, the lawyer said, the Lehman estate still owes him $84 million for his work for 2008.
”The question is whether he was paid that amount,” Judge Shelley C. Chapman asked the lawyer, Douglas Baumstein. “He was owed that amount. Was he paid?”
”I think you do misstate the question,” said Mr. Baumstein, of White Case LLP, during his opening argument. The question, he said, is: “Was he paid for the work he did at Lehman or was he paid it to come over to Barclays?”
Savvas A. Foukas, a lawyer for the Lehman trustee James W. Giddens, said the argument by Mr. Hoffman was “missing the point.” Mr. Foukas, of Hughes Hubbard & Reed LLP, said it “did not matter” that the contract wasn’t assumed by Barclays.
Mr. Hoffman was one of Lehman’s biggest stars and made more than $1 billion for Barclays in his time there, Mr. Baumstein said. Mr. Hoffman, who was present in the courtroom and is set to testify Thursday, has since left the bank.
Another former employee, energy trader J. Robert Chambers, says Lehman owes him $64 million in bonuses, including for 2008, 2009 and 2010, even though Barclays let him go soon after buying the Lehman brokerage. Mr. Chambers, who testified in court on Wednesday, now runs his own energy trading firm in Texas.
Mr. Chambers testified that even though Barclays didn’t keep him, he is entitled to the 2008, 2009 and 2010 bonus money from Lehman because he didn’t officially resign. “I wanted to make sure I didn’t do anything that would impact that contractual language,” Mr. Chambers said.
The other two employees going after Lehman are seeking much less.
Mr. Giddens, the trustee, has reached settlements with many former Lehman employees seeking old bonus money. Judge Chapman has set aside Wednesday, Thursday and Friday for a trial over these four former employees.
Even if the claims were accepted in their entirety, the former employees would be paid at less than the full amount, since only customers of the brokerage received all they are owed. Mr. Hoffman, Mr. Chambers and the others would be considered general unsecured creditors, who have thus far received about 27 cents on the dollar and could eventually get up to 40 cents or more.
Lehman Brothers Holdings Inc., once the nation’s fourth-largest investment bank by assets under management, collapsed into the largest bankruptcy ever in September 2008 with $613 billion in liabilities.
The filing sent markets into turmoil and helped trigger a global financial crisis. Lehman’s brokerage business was quickly sold to Barclays, and the company’s New York-based holding company officially exited bankruptcy in 2012.
Individual customers of the U.S. brokerage, which is under the purview of the bankruptcy court but not technically in bankruptcy protection, received about $92.3 billion almost immediately after Lehman collapsed. In all, Mr. Giddens hopes to have repaid more than $110 billion when he is finished. Customers get 100% of their money back, while unsecured creditors like the former employees get much less.
The Lehman Brothers Holdings Inc. unit, which itself has paid back about $100 billion to creditors including internal affiliates, is still winding down and selling off its remaining holdings, a process that is expected to continue for several more years. Judge Chapman is overseeing both proceedings.
-
Ch. 11 Judge Not Keen To Award Ex-Lehman Star $84M
Apr 22, 2015 | Law360
By Pete Brush
A Manhattan bankruptcy judge expressed skepticism Wednesday as former Lehman Brothers Inc. star trader Jonathan Hoffman, now of Barclays PLC after a fire-sale merger born of the 2008 market meltdown, insisted at a bench trial that the fallen financial giant owes $84 million per his employment arrangement.
U.S. Bankruptcy Judge Shelley C. Chapman asked pointed questions about the bid by Hoffman — along with three others — to collect on sums varying in size from James Giddens, the trustee liquidating the Lehman Brothers Holdings Inc. broker-dealer unit.
“The question is whether or not he was paid,” Judge Chapman said to Hoffman's counsel, Douglas P. Baumstein of White & Case LLP, adding “you don't get paid twice.”
Money paid to him by Barclays was performance-based, Baumstein said, asserting that it was not paid via a contract inherited from his Lehman days.
“He had to show up for work,” Baumstein said. “He couldn't resign. He couldn't leave.”
The trustee argues Hoffman — said to be Lehman's highest-paid trader the year it went bust — is attempting essentially to use contractual sleights of hand to get paid again after already being paid the sum he seeks from Barclays as part of its deal to buy Lehman brokerage assets.
“They're just missing the point,” said trustee counsel Savvas A. Foukas of Hughes Hubbard Reed LLP. “It does not matter that their contracts were not assumed by Barclays. The fact that their contracts were not assumed does not entitle them to be paid twice.”
Judge Chapman appeared unsympathetic to the notion that Hoffman negotiated his Barclays employment contract individually and that its letter differed from many other former Lehman workers. She noted that the LBI sale to Barclays in late 2008 was hammered out “during a period of chaos” when speed was of the essence.
“There is going to be an exploration of the context,” Judge Chapman said.
Among other hurdles, the judge told Hoffman's counsel, will be to prove that Hoffman was not a transferred employee under the merger agreement between Lehman and Barclays.
Also claiming against the estate is John R. Chambers, a former Houston-based Lehman boss who says he's owed for back pay, stock value and unpaid bonus guarantees — he says as much as $64 million — that were supposed to go to him and his team. Chambers' former team members, too, have overlapping claims against the estate.
Two other former Lehman workers, Richard S. Hajdukiewicz and Wayne Judkins, are pressing claims in far smaller amounts.
Even if the claims are allowed, they are likely to be subordinated in rank and less valuable than their nominal dollar values.
Hoffman, perhaps the star witness because he recorded his negotiations with Barclays, was set to testify on Thursday in the trial expected to last three days. He departed Barclays in 2014 but not before earning $1 billion for the British bank, his lawyer said.
Arguing for the trustee was Savvas A. Foukas of Hughes Hubbard Reed LLP.
Arguing for Hoffman, who is claiming through his entity 1EE LLC, was Douglas P. Baumstein of White & Case LLP. Arguing for Chambers was Jennifer A. Christian of Thompson & Knight LLP. Arguing for Hajdukiewicz was David J. Mark of Kasowitz Benson Torres &Friedman LLP. Arguing for Judkins was was Gregory L. Reid of Reid Rodriguez & Rouse LLP.
The case is In re: Lehman Brothers Inc., case number 1:08-ap-01420, in the U.S. Bankruptcy Court for the Southern District of New York. -
Barclays Wins Bid For $1.3M More In Lehman Asset Fight
Apr 22, 2015 | Law360
By Kat Greene
Barclays Capital Inc. won a tug-of-war with the trustee for bankrupt Lehman Brothers Inc. over $1.3 billion when a New York federal judge ruled Wednesday that the trustee’s bid to carve that cash out of the bank’s 2008 purchase of Lehman’s assets came too late.
Barclays argued that the cash had been held in accounts it was awarded in a previous decision that had the trustee paying it $4 billion, but the trustee, vying to keep the funds, asserted in court documents that the court had specified that Barclays could receive only cash that was securing certain investments, and this particular $1.3 billion in funds was securing nothing.
U.S. District Judge Katherine B. Forrest wrote in Wednesday’s ruling that the trustee’s points might have had merit or resulted in a different decision back in 2012, the first time the New York federal court and then the Second District heard the bank’s and estate’s arguments over the money, but that the point was now academic.
“Both appeals — that of the bankruptcy court’s order and that of this court — have occurred. And both appeals encompassed determinations that Barclays is entitled to all margin assets,” Judge Forrest wrote.
The ruling is the latest decision in a fight that, including an appeal to the U.S. Supreme Courtof the Second Circuit's decision on the initial $4 billion, now stretches across four federal courts.
The argument centers on a certain category of money — referred to in court papers as margin assets — that Barclays says it was entitled to after its purchase of Lehman’s assets. The $4 billion was in a variety of accounts to secure exchange-traded derivative bets on behalf of the bank and its customers, court records show.
When the court heard the issue in the first go-round, Barclays estimated that the total was $4 billion and stated generally that it was cash in accounts to back up the derivative bets, according to filings. But it says it also wants cash in those accounts that wasn’t securing derivatives because the investments had already been unwound, something Lehman’s trustee says is outside the bounds of what the bank asked for before.
The trustee, represented by William R. Maguire of Hughes Hubbard & Reed LLP, was seeking clarification that a pile of cash and a group of assets Maguire referred to as “affiliate collateral,” which together constitute the $1.3 billion newly at issue, was not part of the asset sale and that Barclays in any event had abandoned its ability to claim for them by failing to fully brief the Second Circuit to that effect.
David Boies of Boies Schiller & Flexner LLP, representing Barclays, countered in January that the cash and collateral in fact had secured derivative trading positions purchased by the bank and rejected the notion that the bank had abandoned its quest to get the additional sums handed over.
Judge Forrest wrote Wednesday that Barclays' arguments referenced the broadest possible definition of margin assets and that the breadth of the decision doesn’t create a waiver “as to granular components of such assets.”
“It was up to the trustee to raise Barclays’ position as to cash securing derivative positions as either carving out a category of assets, or, if not, diminishing the persuasiveness of its argument,” Judge Forrest wrote. “Those points were not made then and cannot be raised now.”
Representatives for the parties didn’t immediately respond to requests for comment late Wednesday.
James W. Giddens, Lehman's Securities Investor Protection Act trustee, is represented by William R. Maguire of Hughes Hubbard & Reed LLP.
Barclays is represented by David Boies of Boies Schiller & Flexner LLP.
The appeal is In Re: Lehman Brothers Holdings Inc., case number 1:11-cv-06053, in the U.S. District Court for the Southern District of New York.
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
Litigation News
Full Text of Stories Below
Add recipients
Suggested