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Lehman Largely Wins A Promissory Note Collection Case In FINRA Arbitration
Written: June 25, 2012

LONDON, ENGLAND - SEPTEMBER 24:  Two employees...

It’s a preamble that I’ve written before and it’s one that I may yet repeat a few more times before the collection efforts are done. As such, let’s roll the tape:

Once upon a time, way back when as it now seems, Lehman Brothers one of the big four of Wall Street — alongside Goldman Sachs, Morgan Stanley, and Merrill Lynch. Then, life, as we knew it, ended.

This story is part of the process in which many folks with large brooms are cleaning up after the circus parade of those days moves on.

“Street Sweeper” 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).

Also see, “Lehman Seeks To Collect Unpaid Loans From Furious Former Employees” (“ Street Sweeper”, November 19, 2010).

Several months ago, I reported about Lehman Brothers’ first loss in regard to its efforts to collect on promissory notes allegedly owed by former employees.  ”Lehman Suffers First Loss In FINRA Arbitration Collection of Promissory Notes” (“ Street Sweeper” October 12, 2011).   Also see, Lehman Brothers Loses Another FINRA Promissory Note Collection Case” (“ Street Sweeper” May 7, 2012).  Then there was this recent reversal: “Lehman Loses Another Promissory Note Collection Case” (“ Street Sweeper” June 11, 2012).

New FINRA Arbitration

In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in September 2010, Claimant LBHI asserted breach of contract and unjust enrichment in furtherance of its efforts to collect on a promissory note issued to Respondent Kramer. Claimant LBHI sought $456,918.79 in principal due on the note plus interest accruing at the rate of $38.16 per day; and also sought attorneys’ fee, costs, expenses, and other fees. In the Matter of the FINRA Arbitration Between Lehman Brothers Holdings, Inc., as assignee of Lehman Brothers Inc.,Claimant/Counter-Respondent, vs. Kevin R. Kramer, Respondent/Counter-Claimant (FINRA 10-04115, June 21, 2012).

Respondent Kramer generally denied the allegations, asserted various affirmative defenses, and filed a Counter Claim asserting misrepresentations and omissions, as well as other alleged wrongful conduct. Respondent sought at least $450,000 in compensation, attorneys’ fee, and costs.

The FINRA Arbitration Panel found Respondent Kramer liable to and ordered him to pay to Respondent LBHI $428,571.43 in compensatory damages and $86,212.93 attorneys’ fees.

The FINRA Arbitration Panel found Claimant LBHI liable to and ordered it to pay to Respondent Kramer $83,794.61, which includes interest.

Consequently, the Panel rendered a net award to Claimant LBHI in the amount of $344,776.82 plus 3% per annum interest accruing from September 15, 2008, until payment in full; and an additional $86,212.93 in attorneys’ fees.

Bill Singer‘s Comment

Yup, we got every variation imaginable. LBHI wins, loses, and gets a mixed result.  In this most recent combat, the firm lost about eighty thousand as an offset to its former employee but offset that offset with a slight larger attorneys’ fee award.

What accounts for the spectrum of results?  Most likely it’s a toss up of several factors that sometimes vary in their respective weightings.  Among the usual suspects are the lawyers involved, the composition of the Arbitration Panel, the demeanor of the parties, what the arbitrators had for breakfast or whether they’re younger or older than the former employee or whether they’re in a good mood that day or just learned that their son was laid off by a bank holding company and is moving home.  If you think I’m kidding, go ask some other veteran Wall Street arbitration attorneys.  Sometimes the outcomes in these cases have little to do with the facts and more to do with indigestion.


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