Former Lehman Trader Loses Bid for a 'Double-Dip' Bonus of $83 Million
October 09 2015 - 5:36PM
Dow Jones News
By Tom Corrigan
A bankruptcy judge largely rejected a "double-dip" bid by a
former Lehman Brothers bond trader for an $83 million bonus he
claimed he was owed following the investment bank's 2008 collapse,
with the judge calling his request "pure nonsense."
Judge Shelley Chapman of the U.S. Bankruptcy Court in New York
said former top trader Jonathan Hoffman is entitled to only about
$7.7 million stemming from an unpaid portion of the bonus he was
awarded in 2007. Furthermore, Mr. Hoffman will receive only 35
cents on the dollar for the bonus.
"Mr. Hoffman was a gifted trader who generated billions of
dollars in profits for Lehman over the course of his employment,"
Judge Chapman said in an 87-page decision Thursday. But she
characterized as "pure nonsense" the Wall Street veteran's argument
that Lehman owed him more than $83 million, even though he had
received a similar amount from Barclays PLC.
The judge said Lehman's obligation to pay Mr. Hoffman's bonus
was transferred to Barclays PLC when it bought Lehman shortly after
the failed investment bank filed for bankruptcy. Barclays agreed to
pay the $83 million and to copy other key terms of his employment
agreement with Lehman.
The ruling is a win for Lehman bankruptcy trustee James Giddens,
who had said Mr. Hoffman was essentially trying to "double dip" by
collecting from both Barclays and Lehman.
"We are very pleased that there will be no double recoveries in
the LBI liquidation, which is consistent with the law and fair to
all customers and creditors of the LBI estate," a spokesman for Mr.
Giddens said Friday.
A lawyer for Mr. Hoffman declined to comment Friday. A
spokeswoman for Barclays also declined to comment. Mr. Hoffman
couldn't be reached.
Mr. Hoffman, who lives outside Philadelphia with his wife and
three children, majored in economics at the University of
Pennsylvania and took a job at Lehman in 1994 after deferring a bid
to get his M.B.A. at Penn's Wharton School.
At Lehman, Mr. Hoffman became a star, specializing in government
bonds. According to traders who worked with him at Lehman, "Johnny
H" was an astute, successful and somewhat secretive trader, a
self-described lone wolf in the bank's Miami office
He earned $14.8 million in bonuses for 2005 and $20 million in
2006 before taking in $31 million in 2007 and about $77 million in
2008, according to records released after the Lehman bankruptcy.
His contract at both Lehman and Barclays allowed him to collect as
much as 14% of the profits he generated. Since the financial
crisis, new regulations have cut down on the type of trading that
allowed traders like Mr. Hoffman to generate such massive profits
and related bonuses.
Judge Chapman also handed down rulings on several other former
employees seeking bonuses from Lehman.
Energy trader J. Robert Chambers won the judge's blessing for a
$40.7 million bonus, Mr. Chambers received only $1 million from
Barclays after he was transferred from the floundering Lehman.
Lawyers for Mr. Chambers couldn't immediately be reached for
comment Friday. A spokesman for Mr. Giddens said he was still
reviewing parts of the ruling involving Mr. Chambers.
The judge also ruled on two other claims by former Lehman
employees, ruling one was due about $1 million and the other
nothing.
Those with unsecured claims, like the former Lehman employees,
will be paid at less than the full amount of their claims, since
only customers of Lehman's brokerage recovered all they were owed.
Mr. Hoffman and the others will receive 35 cents on the dollar on
most of their claims.
The brokerage is being unwound separately from the investment
bank. Mr. Giddens is leading the effort, which doesn't fall under
bankruptcy law but which is instead conducted under the Securities
Investor Protection Act. Individual customers of the U.S. brokerage
received about $92.3 billion almost immediately after Lehman
collapsed. In all, Mr. Giddens will return $114 billion to Lehman's
customers and creditors.
Lehman, once the nation's fourth-largest investment bank by
assets under management, collapsed into the largest bankruptcy ever
in September 2008. 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.
The Lehman estate, which itself has paid back around $100
billion to creditors, is still winding down and selling off its
remaining holdings, a process that is expected to continue for
several years.
James Sterngold and Joseph Checkler contributed to this
article.
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(END) Dow Jones Newswires
October 09, 2015 17:21 ET (21:21 GMT)
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