Lehman Brothers Tumblin Dice Promissory Note Cases

January 17, 2014

Roll me and call me the tumblin' dice. Oh, my, my, my, I'm the lone crap shooter. Playin' the field ev'ry night. The dice are thrown and . . . it's a 7, a natural. We have a winner!  Sometimes that's about all it takes to decide a case. Lady Luck. On the other hand, it's just as easy to crap out. In today's BrokeAndBroker Blog we have two recent attempts by Lehman Brothers to collect balances due on two promissory notes. Tumblin' dice, my friends. Tumblin' dice. 

An Easy Eight

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in November 2012, Claimant Lehman Brothers ultimately sought to recover up to $1,818,546.68 in compensatory damages based upon allegations of breach of contract attendant to the repayment of the balance of a promissory note. In the Matter of the FINRA Arbitration Between Lehman Brothers Holdings Inc., as Assignee of Lehman Brothers Inc., Claimant, vs. William C. Gourd, Respondent (FINRA Arbitration12-04119, January 6, 2014  )

Respondent Gourd generally denied the allegations and asserted various affirmative defenses, and Counter-claimed for at least $5,556,773 in damages. 

The FINRA arbitration Panel denied Claimant Lehman's claims and Respondent's counterclaims.

Snake Eyes

In a FINRA Arbitration Statement of Claim filed in April 2008, Claimant Lehman Brothers asserted breach of contract in connection with it claim for repayment of $204,012.86 plus interest, costs, and fees in connection with a promissory note.  In the Matter of the FINRA Arbitration Between Lehman Brothers Inc., Claimant, vs. Jason Kraskiewicz, Respondent (FINRA Arbitration 08-00990, January 13, 2014).

Respondent Kraskiewicz did not file a Statement of Answer or a signed Submission Agreement, and he failed to appear. The FINRA Arbitration Panel found Respondent Kraskiewicz liable and ordered him to pay to Claimant Lehman Brothers $204,012.86, plus interest at the rate of 1% per annum from February 27, 2007, until the date of payment of the Award; and $30,601.93 in costs.

Bill Singer's Comment

How do we account for the different outcomes?  Not sure that the answer would be more than a guessing game as neither FINRA Arbitration Panel offered any rationale for their different decisions. One thing worth noting, however, is that Gourd seems to have taken his case to the mat. He showed up and fought the case all the way through a winning verdict. On the other hand, Kraskiewicz seems to have taken a powder and left the arbitrators to rule based upon only one side of the case -- which may easily explain Lehman's victory.

Once upon a time, way back when as it now seems, Lehman Brothers was one of the big four of Wall Street - alongside Goldman Sachs, Morgan Stanley, and Merrill Lynch. Then, life as we knew it, ended.  And after the lives of far too many folks were upended by the Great Recession, the clean-up crews started the dirty job of finding the bucks to pay the bills - which prompted many Wall Street firms to go after the balances on retention bonuses, employee forgivable loans, and a whole host of promissory notes.  "BrokeAndBroker" has reported on Lehman Brothers, Inc.'s attempts to collect on millions of dollars in promissory notes that it had extended to a number of its employees:

In the once halcyon days of Wall Street, Lehman Brothers Inc. ("LBI"), the broker-dealer subsidiary of Lehman Brothers Holding, Inc. ("LBHI"), gave 113 of its employees about $80 million in loans. If you look at the dates of the promissory notes involved, they go as far back as 1998 and as recently as August 2008, just before Wall Street imploded. On September 15, 2008, LBHI filed for Chapter 11 bankruptcy, which was the largest in the nation's history. However, before that enormous blast, those 113 LBI employees managed to get about $700,000 each. . .

Comes December 2009, amidst the shards of what once was, LBHI entered into a stipulation with its debtors and LBI as part of the Securities Investors Protection Act (SIPA) liquidation of LBI. Based upon court papers, those 113 notes had a net balance due of about $51 million and were deemed to be LBHI's to collect.  Pre- or post-Great Recession, no one is going to walk away from $51 million. "High Noon for 113 Former Lehman Employees" ("Street Sweeper" February 15, 2011). , .

I have made it a point of disclosing my bias on this issue.  I don't like Lehman's efforts. I think it's victimizing victims and, frankly, unsavory, to say the least. As such, I root for those who lost their jobs to keep their loans, regardless of the legal issues involved. The likes of Lehman should be squeezing blood out of other rocks. It irks me to see that there isn't more of a sense of fairplay in the industry - particularly when it comes to folks who intended to go to work but for the fact that their place of work no longer existed.

Tempering that position, I am mindful that the creditors of LBHI were also victimized and that the recovered funds from the disputed promissory notes will benefit those individuals and entities; nonetheless, when I ultimately weight the merits of the battle between these two sets of victims in this specific matter, my sympathies generally fall into the camp of the former employees.  Which is not to say that blood ought not be drawn from former in-house Lehman folks to restore the financial health of the firm's creditors.  My position is go after the senior executives and board members, who were more culpable for causing the mess than the unemployed workers.

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