By Joseph Checkler
NEW YORK--A former Lehman Brothers star trader secretly recorded
several conversations that he says prove Lehman owes him more than
$83 million in bonuses for his work done mostly in 2008, even
though he received a similar amount when Barclays PLC bought
Lehman.
Testifying on the second day of a trial over whether Lehman owes
its ex-employees bonus money, former top global rates trader
Jonathan Hoffman said he taped the conversations as a note-taking
method, without telling parties he was recording them.
In a negotiation with Rich Ricci, then the operating chief of
Barclays's investment bank, Mr. Hoffman told Mr. Ricci, "I guess
I'm surprised that my contract isn't just being made whole,"
according to a recording of the 2008 conversation played in the
courtroom Thursday.
The main question is whether Barclays paid Mr. Hoffman the $83
million bonus as part of honoring his Lehman contract, or as part
of a new deal. Lawyers for James W. Giddens, the trustee winding
down Lehman's brokerage business, say Lehman owes Mr. Hoffman
nothing since the trader's Barclays contract was essentially the
same as his Lehman deal and Barclays paid him the money.
During cross-examination, Mr. Hoffman told Hughes Hubbard &
Reed LLP's Savvas A. Foukas, a lawyer for Mr. Giddens, that once he
realized Barclays wasn't assuming his Lehman contract, he asked for
something different from Barclays. "I'm not asking what you asked
for sir, please answer my question," Mr. Foukas said.
Mr. Hoffman eventually said, "I got paid for the work I did at
Barclays." His contract at Barclays was substantially similar to
the Lehman deal.
Judge Shelley Chapman, the Lehman bankruptcy judge who is
presiding over the trial, seemed more concerned about whether he
got the bonus money and less concerned with who gave it to him.
The judge asked Mr. Hoffman if he would have been satisfied if
Barclays simply gave him the Lehman bonus money and then started
negotiating a new contract.
"If someone gave me $83 million, yes," Mr. Hoffman said.
Later, Mr. Foukas asked Mr. Hoffman whether he would have been
"happy" if Barclays declined to honor his Lehman contract, but
still gave him the $83 million bonus.
"Not as happy as if I had worked at other places," Mr. Hoffman
said.
Mr. Hoffman made nearly $550 million in profits for Lehman
during 2008, and his trading represented 10% of the bank's total
profit during 2007. So when Lehman collapsed, Barclays wasn't his
only option, he said. Earlier in the day, his lawyer, White &
Case LLP's Douglas Baumstein, asked about a meeting Mr. Hoffman had
with Kenneth Griffin's Citadel LLC, a well-known Chicago-based
hedge fund.
"Were you confident you could get an offer from Citadel," Mr.
Baumstein asked. "I'm still confident I could get an offer from
Citadel," Mr. Hoffman replied.
When Mr. Baumstein later asked Mr. Hoffman what he wished he
would have done differently, Mr. Hoffman said, "Worked for
Millennium," referring to Israel Englander's Millennium Management
LLC, a New York hedge fund with which Mr. Hoffman said he
interviewed.
Judge Chapman later asked Mr. Hoffman, who also said he had a
five-hour meeting with Steven A. Cohen at the Connecticut offices
of SAC Capital Advisors, if the Barclays deal was the best deal on
the table.
"I don't think I took the best deal," Mr. Hoffman said. He ended
up working at Barclays for about five years, making about $1.25
billion in profits for the bank, he said. He said he is currently
not working.
Mr. Giddens, the trustee, has reached settlements with many
former Lehman employees seeking old bonus money. Judge Chapman set
aside Wednesday, Thursday and Friday for a trial for Mr. Hoffman
and three other employees. It is unclear when she might rule.
Even if the claims are accepted, 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 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 has already paid back more
than $112 billion to creditors and customers of the brokerage.
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 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
Access Investor Kit for Barclays Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB0031348658
Access Investor Kit for Barclays Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US06738E2046
Subscribe to WSJ: http://online.wsj.com?mod=djnwires