Comments on: Creditors May Be Able to Claw Back Lehman 2007 Bonuses

By: Anonymous

Anonymous — Fri, 19 Sep 2008 02:47:00 +0000

I'm a bankruptcy attorney. Without studying the issue in detail, it looks as though they'll be plenty of problems with an FT complaint (an avoidance action under 548 of the bankruptcy code and various debtor/creditor state laws). I'm not so sure that you can wish away "reasonably equivalent value." I know that's hard to fathom. Also, I think collecting, assuming you'd win, would be difficult.

Not to mention, the creditors committee or ad hoc bondholders committee is likely to get the section 5 causes of action as a bone.

Collective wisdom on Lehman Bankruptcy is as follows: Quick sale tomorrow (Friday) followed by ten years of litigation over everything under the sun.

By: Anonymous

Anonymous — Mon, 15 Sep 2008 14:01:00 +0000

for the last couple of years, most of the huge bonuses have been equity based--options, restricted stock, etc., with vesting schedules to keep the recipients from bolting (or make it more expensive for their new employer to buy them out of their existing situation).

I don't think there is going to be much for the creditors from that angle. But, the losses to the recipients of the bonuses,and the consequences of tax elections, etc., are likely to be spectacular, in personal terms.

Unless they hedged away the risk, and if that was widely done gets out, there will be hell to pay.

By: Anonymous

Anonymous — Mon, 15 Sep 2008 12:08:00 +0000

anon at 2:44: So, if I get your point, you're saying that at the when 2007 bonuses were paid, Merrill's stock was worthless? If so, then Levitan's argument is buttressed by your point. Merrill executives knew they were under water -- and they paid themselves worthless stock as a sort of gambit to 'fool' the markets or something.

Fascinating.

And, of course, the corollary to your insight is also trenchant. Henceforth, we'll put a value on stock-as-bonuses at the time that stock is transacted down the road; not, in the old fashioned way, at the time of the stock grant itself.

This powerful approach of yours means that all stock-as-bonuses become options. If, at the time of ultimate sale, the stock is worthless, then no value has been transferred. Which, of course, means that these Merrill execs deserve a tax refund. And, if, in other cases, the stock actually has value when sold, then, I suppose, we also don't assign a tax basis until that transaction -- which means there's never any tax consequences because all such transactions are a wash.

You really should give Bernanke and Paulson a call. They need your kind of creativity in these perilous times.

By: Anonymous

Anonymous — Mon, 15 Sep 2008 08:55:00 +0000

anonymous, try that defense with the IRS. It doesn’t matter if it was in soybeans — $5.7 billion of bonuses paid is $5.7 billion of value that (potentially erroneously) went out the door at the time. A clawback would expect $5.7 billion of value — most likely in cash — to come back.

By: Anonymous

Anonymous — Mon, 15 Sep 2008 06:44:00 +0000

90% was in stock-help yourself asshole

By: Matt Dubuque

Matt Dubuque — Mon, 15 Sep 2008 06:30:00 +0000

Cool. More money for securities lawyers.

My belief is that those with a net worth over 25 million should ALSO share the pain that is coming as we accelerate the transition into the post-American world.

I hope these attorneys are able to reclaim these bonuses for the creditors.

All for it.

Matt Dubuque