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SATURDAY 14th September was the fourth anniversary of the collapse of Lehman Brothers and we were fascinated to learn that legal punch-ups are still going on, over, of all things, employee sign-on bonuses.

These fantastical banker wheezes crept into shipping from around 2005 and stuck around for 3 or 4 years. Exciting as it was, they weren’t as commonplace as frenzied market gossip would have had us believe. Spinnaker was commissioned by a commodity trading client to conduct market research over each of those years to investigate and verify or disprove the rumours they were hearing at the time. Every sign-on bonus, or ballast bonus as they became known, produced at least five versions of itself, which whizzed round the market like a balloon losing air. But they did happen and, for a brief while at least, shipping, particularly the freight derivatives market, became super-sexy. It was unsustainable of course – the earnings just aren’t there long term in freight to support anyone but the very special in this way.

Unlike banking of course, where sign-on bonuses have been commonplace for many years.

Former Lehman Brothers broker Robert James Reilly of Hingham learned this month (Sept 2012) that he won’t have to repay a $200,000 sign-on bonus he received when he joined the failed Wall Street investment bank in 2006. The signing bonus was structured as a loan that was supposed to be forgiven in stages if Reilly remained with the company for seven years. His lawyer argued that the loan should have been forgiven when Lehman collapsed and its assets were sold off: “He didn’t leave Lehman. Lehman left him. Nobody signed up for Lehman thinking it would no longer be here some day.”

Lehman (more precisely, presumably, its receivers) sued 114 brokers for failing to pay back loans. Reilly’s case was arbitrated by the Financial Industry Regulatory Authority, the largest independent regulator for US securities firms. Despite the Reilly case, Lehman has actually had success suing other former workers. They won at least 100 percent of the principal in 14 of 18 cases that were tried, settled another 45 cases and are still pursuing another 20 cases. The tribunal dismissed Reilly’s counterclaim for $1.5 million in compensatory damages.

Bankers eh!?

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