By Joseph Checkler
NEW YORK--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.
Write to Joseph Checkler at joseph.checkler@wsj.com
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