Lehman Brothers Suffers Stunning Promissory Note Defeat

June 11, 2013

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in April 2011, Claimant Lehman Brothers asserted breach of contract and unjust enrichment (the latter cause of action was withdrawn at the hearing) in connection with its efforts to collect on an alleged balance due on a promissory note with its former employee, Respondent Mullen. At the hearing, Claimant sought $614,289.89 in compensatory damages. In the Matter of the FINRA Arbitration Between Lehman Brothers Holdings Inc., as assignee of Lehman Brothers. Inc., Claimant, vs. Peter Mullen, Respondent (FINRA Arbitration 11-01807, June 6, 2013 ).

Respondent Mullen generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim in which it asserted misrepresentation, fraud, and omissions. In his Counterclaim, Mullen sought $463,000 in compensatory damages, interest, attorneys' fees, and costs.

The FINRA Arbitration Panel denied Claimant's claims.

Bill Singer's Comment

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.

Compliments to Respondent Mullen's legal counsel, Daniel J. Dwyer, Esq.. Murphy & King, Boston, Massachusetts.

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