As many an investor knows, the Lehman Brother Bankruptcy filing has left an indelible scar on both institutions and investors. Also, many wonder why the investment bank was not saved by the Fed.
The individual investor was particularly hurt by investing in Lehman unsecured debt that was packaged up by firms such as UBS as Principal Protected Notes (PPN’s), Partially Principal Protected Notes (PPPN’s), Return Optimization Notes (RON’s) and Exchange Traded Notes (ETN’s). UBS was not alone in selling Lehman debt as the firm’s need for capital made the retail investor the last avenue of funding and the firm’s peddling the debt were rewarded handsomely with high commissions and sales concessions.
So one year later, where are those executives that brought down the 150 year old bastion of Wall Street and what are they doing now? A recent a Market Watch article sheds some light on this question. Excerpts appear below.
SAN FRANCISCO (MarketWatch) — A year after the collapse of Lehman Brothers sparked a firestorm in the global markets and threatened a financial meltdown, a few of the Lehman executives at the center of that conflagration are starting to resurface.
Former Chief Legal Officer Thomas Russo has a senior position at a New York law firm, while Jeremy Isaacs, who headed the firm’s operations in Europe and Asia, has launched a new investment business. Even ex-Chief Executive Richard Fuld has a new job.
The first anniversary of the firm’s collapse revives painful memories for those who have argued the investment bank shouldn’t have been allowed to fail when such rivals as Goldman Sachs and Morgan Stanley were saved just days later.
The collapse of Lehman Brothers a year ago sparked a firestorm in the global markets and threatened a financial cataclysm. Even today the question remains, would saving Lehman have made a difference?
One former Lehman employee who didn’t want to be identified said the bankruptcy was very painful for all of the firm’s staff, and many just want to put the collapse behind them.
“I feel horrible,” Fuld told Congress in October, less than a month after the bankruptcy. “What has happened is an absolute tragedy.”
Lehman asked the Federal Reserve for help, but it didn’t get much, Fuld said. But days after the firm filed for bankruptcy, on Sept. 15, the Fed and other regulators rushed to save Goldman and Morgan Stanley by granting them many of the things that Lehman hadn’t gotten, he argued.
Lehman asked the Fed to let it become a bank holding company, which could have given the firm more access to deposits, considered a more stable source of funding.
Lehman also asked the Fed to broaden the types of collateral that could be used to tap the Term Securities Lending Facility, one of the main programs used by the government to boost liquidity during the financial crisis.
On the day Lehman prepared to file for bankruptcy protection from creditors, the Fed “significantly” relaxed those collateral requirements, Fuld recalled. “Had these changes been made sooner, they would have been extraordinarily helpful to Lehman.”
As Goldman and Morgan Stanley shares slumped in the wake of Lehman’s collapse, the Securities and Exchange Commission banned short sales, or negative bets, against roughly 800 of the largest financial-services stocks — four days after the bankruptcy filing.
A few days after that, the Fed allowed Goldman and Morgan Stanley to become bank holding companies. See full story.
Most former Lehman executives are still keeping out of the limelight.
The Justice Department subpoenaed at least a dozen Lehman executives, including Fuld, Callan, Gregory and Ian Lowitt, a former co-chief administration officer at the firm, according to a Wall Street Journal report last October. Justice Department spokesman Charles Miller declined to comment and the Journal noted that it’s not clear which executives are targets of the investigation or witnesses.
Richard Fuld, Chairman and CEO of Lehman Brothers Holdings, testifying at a House Oversight and Government Reform Committee hearing on the causes and effects of the Lehman Brothers bankruptcy, in Washington, Oct. 6, 2008.
In March, New Jersey’s attorney general sued nine former Lehman executives, including Fuld, Callan, Gregory, Lowitt, Thomas Russo and Bart McDade, former president and chief operating officer of the firm.
New Jersey Gov. Jon Corzine, a former CEO of Goldman, said Lehman executives should be held accountable for “fraud and misrepresentation” that left his state’s pension funds with more than $100 million in losses.
Fuld recently started Matrix Advisors LLC in an office at 780 3rd Ave. in New York, a building that also is home to Paulson Investment Co. Inc., Renaissance Capital, Itar-Tass News Agency and offices of Sen. Kirsten Gillibrand.
It’s not clear what Matrix does. A representative at the office said she would pass a late-August message seeking comment on to Fuld. Patricia Hynes, Fuld’s lawyer, didn’t respond to an email.
An executive at Renaissance Capital said he’d heard that Fuld operates from the building but hadn’t seen him. The executive added that if someone had seen Fuld, he thinks they would have mentioned it.
Callan started at Credit Suisse in September 2008, running a hedge-fund advisory group. Callan advised hedge funds at Lehman before she took on the CFO position there in late 2007. At Credit Suisse, she coordinates departments to make sure that they are working well together to service hedge-fund clients.
In February, Callan took a leave of absence from Credit Suisse. A spokeswoman for the investment bank said on Aug. 20 that Callan was still on leave, adding that she didn’t know why the former Lehman CFO was away from work. The spokeswoman also confirmed that Callan was still an employee of Credit Suisse.
Steven Eckhaus, Callan’s lawyer, didn’t return an email seeking comment.
Both Callan and Gregory left their posts at Lehman in June 2008.
Gregory, Lehman’s former chief operating officer, doesn’t appear to have taken another formal job. However, he remains one of the trustees of the Harlem Children’s Zone, a charity that tackles poverty in Harlem, working alongside finance-industry giants including Stanley Druckenmiller, Gary Cohen, Zoe Cruz, Kenneth Langone and Richard Perry.
Gregory is also listed as secretary of the board of trustees at Hofstra University and as a member of the national board of advisers for the Posse Foundation, which promotes diversity at universities.
In August, Gregory filed a $233 million claim against Lehman’s bankruptcy estate to recover equity-based compensation that he’d deferred while working at the firm.
MarketWatch phoned Gregory’s home in Huntington, N.Y., and the woman who picked up said, “Gregory residence.” She also said she would pass a message on to Gregory.
Thomas Russo, former chief legal officer at Lehman, is now senior counsel at law firm Patton Boggs LLP in New York. He also taught a course at Columbia Business School this summer called “Credit Crisis: As Seen Through Other Lenses.”
Reading material for the course included a 2008 presentation Russo gave to the Group of Thirty finance and economic experts led by former Fed Chairman Paul Volcker.
Russo warned about the potential for broader trouble from the mortgage meltdown and said that any ways to boost liquidity and limit distressed asset sales should be considered.
Other suggested reading included articles on Bear Stearns and American International Group , two other financial giants that almost perished last year, along with stories on whether the Fed caused the financial crisis. None of the material focused on Lehman.
Herbert “Bart” McDade III, former Lehman president, helped integrate the firm’s U.S. capital-markets business with Barclays Capital after the British bank Barclays PLC bought the unit out of bankruptcy protection in mid-September 2008.
McDade left Barclays Capital a few months later. He was reportedly hired earlier this year by Nomura to head up a securitization team at the Japanese firm.
Nomura spokesman Ralph Piscitelli declined to comment. An assistant who answered the phone at the front desk of Nomura in New York on Aug. 20 said she couldn’t find a listing for Herbert McDade or Bart McDade in the U.S. or at any of Nomura’s offices around the world. See related story on the Nomura and Barclays acquisitions of Lehman assets.
Jeremy Isaacs, Lehman’s former head of Europe and Asia, started an investment firm called JRJ Ventures LLP late last year with Roger Nagioff, who’d headed Lehman’s fixed-income division.
Should Lehman Brothers have been saved? We ask New Yorkers whether the collapse of Lehman Brothers should, or could, have been prevented.
Isaacs announced plans to leave Lehman just before the firm filed for bankruptcy.
London-based JRJ has 10 employees, according to the U.K.’s Financial Services Authority, which maintains a registry of regulated firms.
Other former Lehman staff at JRJ include Joanna Nader, Huarong Tang, Fouad Braidy, Era Sahni and Peter Sugarman, according to the FSA’s register.
Going to Sears
Former Lehman co-Chief Administrative Officer Scott Freidheim was hired by Edward Lampert’s Sears Holdings in December.
Freidheim was named an executive vice president for operating and support businesses at Sears. He also joined the retailer’s internal holding-company business unit’s board of directors.
He helps oversee Sears units that sell products and services including food, home appliances, home electronics, shoes, lawn and garden tools and sporting goods. Freidheim also helps oversee support units at the retailer, including information technology, legal, finance, marketing and human resources.
A Sears spokesman said Freidheim was unavailable for comment in late August.
Ian Lowitt, the other former co-Chief Administrative Officer at Lehman, joined Barclays in September 2008, soon after the bankruptcy.
That month, Barclays also bought the assets of Lehman’s private-investment-management business in its Americas region. The deal helped the bank launch Barclays Wealth in the U.S. The unit provides stock broking, private banking, investment management and fiduciary services to people with at least $10 million in investable assets.
Lowitt became chief operating officer of Barclays Wealth in April. He oversees all infrastructure, including business strategy and development, finance, legal and compliance, human resources, information technology, marketing and communications.
A spokeswoman for Barclays Wealth said Lowitt was unavailable for comment in late August.
The attorneys at Colling, Gilbert, Wright & Carter are currently representing clients who have lost money in Lehman Brother’s backed structured notes and products. If you feel the risk associated with these products was not fully disclosed or if you purchased a Lehman backed security in late 2007 or in 2008, please contact our office for a case evaluation. Thank you.