A federal appeals court refused to let an ex-Lehman Brothers Inc. bond trader collect the bulk of an $83 million "double dip" for bonuses he claimed he was owed in the defunct broker-dealer's liquidation.
The Second Circuit Court of Appeals on Thursday affirmed a bankruptcy court's ruling that former top trader Jonathan Hoffman's claim for $75.3 million in compensation from Lehman was extinguished when he was paid that amount by Barclays PLC, where he went to work following Lehman's 2008 collapse.
Lehman's obligation to pay that amount was transferred, or "delegated," to Barclays under its deal to buy the brokerage at the peak of the financial crisis, according to the appeals court. The decision upheld a bankruptcy court's 2015 ruling and concludes nearly a decade of legal wrangling in Mr. Hoffman's quest to collect from the remnants of Lehman.
Barclays had agreed to pay Mr. Hoffman $83 million and to copy other key terms of his employment contract with Lehman. Since 2009, Mr. Hoffman has argued the money he received from Barclays was entirely for his success after Lehman closed, and Lehman retained its own separate obligation to pay him.
Mr. Hoffman never denied the payment from Barclays but argued it was purely a special bonus to lure a star who would go on to produce $1.25 billion in profit for his new employer.
In a deposition, a Barclays managing director recalled thinking Mr. Hoffman was a "sneaky bastard" for seeking compensation from the Lehman estate but later conceded that Barclays elected to make its payments and "we were under no obligation that I know to do that."
Thursday's decision also granted Hoffman a $7.7 million claim surrounding an unpaid portion of his bonus from 2007. But the appeals court mostly sided with Lehman's liquidation trustee, who said he was pleased "the most significant portion of this attempted double recovery has been denied."
The trustee, James Giddens, said the ruling was "consistent with the law and supports fairness to all customers and creditors."
Douglas Baumstein, an attorney for Mr. Hoffman, said, "It's not everything we were looking for, but it's certainly a partial vindication."
Mr. Hoffman's $7.7 million allowed claim will now be paid, but only in part. He will be paid on an equal basis with other Lehman unsecured creditors, who have received 39 cents on the dollar, or approximately $9 billion, so far. More than $115 billion overall has been returned by the bankruptcy estate, including full repayment for customers, secured creditors and administrative expenses.
The brokerage is being wound down separately from its parent, Lehman Brothers Holdings Inc. Mr. Giddens is leading the proceedings, which are governed by the Securities Investor Protection Act rather than U.S. bankruptcy law.
The Second Circuit ruling boosts the amount available for other unsecured creditors because the trustee can now release $75.3 million that had been set aside in case Mr. Hoffman prevailed in full. The trustee maintained Mr. Hoffman shouldn't be paid twice for the same bonus since both he and Barclays understood the payments would be Barclays's responsibility.
Of more than 15,000 general creditor claims, Mr. Giddens has resolved all but approximately 400.
Mr. Hoffman took a job at Lehman in 1994 after deferring a bid to get his M.B.A. at Penn's Wharton School. At Lehman he became a star, specializing in government bonds in its Miami office. Mr. Hoffman made nearly $550 million in profits for Lehman during 2008, and his trading represented 10% of the bank's total profit in 2007. He received $100 million in compensation for his trading at Barclays from 2008 to 2010, in addition to the $83 million he received on account of his Lehman bonus.
--Patrick Fitzgerald contributed to this article.
Write to Andrew Scurria at Andrew.Scurria@wsj.com
(END) Dow Jones Newswires
July 27, 2017 15:23 ET (19:23 GMT)