Deal of the Decade? Lehman's Fuld Gave $13.75 Mil Estate to Wife for $100
Transfer could be effort to avoid potential creditors, attorneys say.
January 26, 2009— -- Less than two months after the investment banking firm he led collapsed in the largest bankruptcy in U.S. history, Lehman Brothers CEO and Chairman Richard Fuld transferred his $13.75 million ocean front estate in Jupiter Island, FL to his wife for just one Benjamin Franklin bill, Florida real estate records reveal.
The move is garnering attention for what might be Fuld's attempt to avoid creditors as he could face civil lawsuits in the future.
It sounds like Fuld is "trying to save as many assets as he can," said Palm Beach attorney Jeffrey Zane, who does not represent Fuld. The move, he added, is basically an interfamily transfer that was necessary because Fuld, as a non-resident of Florida, was not safeguarded by the state's homestead property laws that can protect a family home from creditors.
After failing to find a financial savior to save it from collapse - which was a partial consequence of its heavy involvement in sub-prime mortgage investments - Lehman Brothers filed for bankruptcy Sept. 15, 2008.
The transfer of the lavish home to Kathleen Fuld took place Nov. 10, 2008, according to public records, which came just over one month after Fuld faced scrutiny during a heated Congressional hearing.
The couple purchased the more than three-acre estate in 2004. Cityfile.com first reported the recent transfer from Fuld to his wife.
Florida attorney Eric S. Ruff told the New York Times that Fuld's transfer is "the oldest trick in the books." "It's common when you hear the feet of your creditor approaching to divest yourself," Ruff said.
Ruff also told the Times that the sale could be deemed fraudulent if Fuld's wife is determined to not have paid enough for the property, potentially paving the way for creditors who come wanting to collect.
Zane said that should any question arise surrounding the legitimacy of the transfer, the Fulds could argue the move was part of their overall estate planning and that the transfer date coincidentally "happened at the same time that [Fuld] was under so much glare or publicity."
Fuld did not immediately return a message left for him by ABCNews.com.
Fuld Testified Before Congress
Many at Lehman blame Fuld for dallying while his investment bank went bust, taking risks with other people's money while he cleared over $40 million in salary and stock in the last year alone.
Fuld became the poster boy for Wall St. greed last October, when he stood before Congress and defended the $484 million he received in salary, bonuses and stock options since 2000. Fuld said that given the worthless stock of Lehman Brothers after its collapse, his actual holdings were closer to $350 million.
Fuld, who also owns a mansion in Greenwich, CT, a ski chalet in Idaho and a Manhattan apartment, told the Congressional panel that he took "full responsibility" for the bankruptcy of Lehman Brothers and "felt horrible" about it. But he also said he has yet to understand why the federal government helped to bail out the AIG insurance company and other investment banking firms, but did not do so a few days earlier to save Lehman Brothers.
"Until the day they put me in the ground, I will wonder," Fuld told the Congressional panel, seeming to seethe with anger.
"This is a pain that will stay with me the rest of my life."
In his opening remarks, Waxman lambasted both Fuld and Lehman.
Internal documents obtained by the committee, Waxman said, "portray a company in which there was no accountability for failure."
Waxman cited an e-mail exchange among top Lehman executives. After someone sent an e-mail suggesting that Lehman's top management give up their bonuses, both Fuld and George H. Walker, a member of Lehman's executive committee and a cousin of President Bush, sent e-mails disagreeing with the suggestion.
Walker, according to Waxman, replied by writing, "Sorry team. I'm not sure what's in the water at 605 Third Avenue today. … I'm embarrassed and I apologize."
Waxman said that Fuld "mocked" the suggestion by adding, "Don't worry – they are only people who think about their own pockets."
Waxman also cited a request submitted to Lehman's compensation committee four days before the firm filed for bankruptcy. The request, he said, recommended that the board give three departing executives over $20 million in "special payments."
"In other words, even as Mr. Fuld was pleading with Secretary Paulson for a federal rescue, Lehman continued to squander millions on executive compensation," Waxman said.
Richard Fuld Testifies Before Congress
Despite warnings that "liquidity can disappear quite fast," Fuld "depleted Lehman's capital reserves by over $10 billion through year-end bonuses, stock buybacks, and dividend payments," Waxman said.
Others at the hearing voiced their own concerns about compensation at Lehman.
Nell Minow, the editor of the research firm, The Corporate Library, highlighted Fuld's compensation, which exceeded $70 million last year.
"I think it is fair to say by any standard of measurement that this pay plan is as uncorrelated to performance as it is possible to be," she said.
Minow also found fault with Lehman's corporate board. The Corporate Library grades the performance of corporate boards and last month, Minow said, the firm downgraded Lehman's board to an "F."
"In this case, the board was too old, had served too long, was too out of touch with massive changes in the industry, had too little of their own net worth at risk, and was too compromised for rigorous independent oversight," she said.
Prior to Fuld's testimony, Minow and several other experts testified before the committee on Lehman's bankruptcy and today's financial turmoil.
Dr. Luigi Zingales, a professor of finance at the University of Chicago, said that Lehman's demise was a result of its aggressive use of leverage, or debt to finance investments, "in the context of a major financial crisis."
It made Lehman especially vulnerable to insolvency, Zingales said.
"Lehman did not find itself in that situation by accident; it was the unlucky draw of a consciously-made gamble," he said.
Robert Wescott, the president of the economic analysis and public policy research firm Keybridge Research LLC, said that the root of the financial crisis, overall lay in "easy credit."
Variable rate mortgages with low initial interest rates "gave many families an inflated sense of their capacity to afford housing," Wescott said. As a result, he said, housing prices began rising as high as 30 percent per year and "a housing frenzy developed."
Near the end of the Congressional hearing, after some two hours of questioning, Fuld stressed his personal feelings about Lehman's bankruptcy.
"My employees, my shareholders, creditors, clients have taken a huge amount of pain and, again, not that everybody on this committee cares about this, but I wake up every single night thinking what I could I have done differently," he said.
"I have searched myself every single night, and I come back to at the time ... I made those decisions, I made those decisions with the information that I had ... I can look right at you and say this is a pain that will stay with me for the rest of my life, regardless of what comes out of this committee."
Waxman closed the hearing noting that he was dissatisfied with Fuld's testimony.
"You took responsibility for the decisions you made in retrospect, you think you should have done some things different," he said, "but you don't seem to acknowledge that you did anything wrong."