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12.02.09

Inside Dick Fuld's Bunker

Home transfers, apartment sales, art liquidations, dragged-out tax payments. William Cohan on life in exile for the disgraced former CEO of Lehman Brothers.

In the months following the collapse of his firm, Dick Fuld, the longtime chairman and CEO of Lehman Brothers, did what any self-respecting businessman facing financial ruin would do: He transferred the title of his waterfront home on the tony, exclusive Florida enclave of Jupiter Island into his wife Kathleen’s name for a mere pittance. Now, it seems, the couple is taking their time paying the nearly $212,000 in annual property taxes on the house, although they are still months away from any default for failure to pay.

What Rich People Don't Want You to Know About Their SpendingThe transfer of the property to Kathy Fuld made sense, of course, because if Lehman’s forlorn creditors started coming after Fuld for whatever transgressions they perceived him to be responsible for in the wake of the collapse of the firm in September 2008—where shareholders were wiped out and creditors are still hoping to receive pennies on the dollar—at least his Florida home (valued for tax purposes at $13.3 million and probably worth much more) would be safe from their grasp. Florida’s lenient bankruptcy laws make real property beyond the reach of creditors under most circumstances. Fuld completed the transfer of the property, at 265 South Beach Road, on 3.3 acres of land, facing the Atlantic Ocean, on November 10, 2008, near two months after Lehman collapsed. The Fulds bought the house in rosier times—March 2004—from Jeffrey Gelman, a local real-estate developer, for $13.75 million. (Gelman reportedly sold another home recently on the island, for $5 million, after a tough series of negotiations to someone he thinks was acting on behalf of billionaire Microsoft founder Bill Gates. He also sold a house recently on the island to singer Celine Dion.)

Florida’s lenient bankruptcy laws make real property beyond the reach of creditors under most circumstances.

After the Fulds bought the house from Gelman, they were then responsible for the annual property taxes. In 2004, that tax bill was $154,028.92, or if paid before it was technically due, at the end of March 2005, the taxes would be $147,867, representing a four percent discount for early payment. The Fulds paid the lower, discounted amount by check, on November 27, 2004 and saved them themselves $6,161. In each of the following years, the Fulds paid the property taxes in November—early—in order to capture the biggest discount since each month that the taxes are unpaid the discount available gets smaller until March, when the full amount is due. (A default is declared if the taxes are not paid by April of the following year.) On November 15, 2008, despite the collapse of his firm two months earlier and just after the title was transferred into his wife’s name, Fuld’s “independent family office,” located in Albany, New York sent a check for $197,193.75 to the Martin County, Florida tax collector, in Stuart, Florida. He saved himself $8,216 in the process.

So far in 2009, though, the Fulds have not yet paid their taxes, which is out of step for what they have done since they owned the place. The bill, sent to Kathleen Fuld at the couple’s Greenwich, Connecticut home, was for $218,553.76. If the Fulds decide to pay the bill sometime in December, the taxes would be $211,997.15.

The Fulds still should have plenty of money, despite Fuld losing somewhere around $1 billion in paper net worth when his firm collapsed. He still owns his palatial mansion in Greenwich and his elegant spread near Sun Valley, Idaho. In August 2009, the Fulds sold their full-floor 6,200-square-foot apartment on Park Avenue to Glenn Fuhrman, the head of MSD Capital (the investment firm set up by Dell Computer founder Michael S. Dell), for $25.87 million. The Fulds had paid $21 million for the apartment in January 2007 and then gutted and renovated it. They had been seeking $32 million for the apartment. Last November 2008, the Fulds sold a portion of Kathy’s art collection—some 16 pieces—for $13.5 million, below the low-end of the range they hoped to receive. No matter, though. Christie’s had guaranteed that the Fulds would receive $20 million for this small portion of their larger collection, so it was the auction house that suffered the loss, not the Fulds. Kathy Fuld is on the board of trustees of the Museum of Modern Art.

As for Fuld himself, he is now working at something called Matrix Advisors, at 780 Third Avenue, in Manhattan. Except for several obvious cameos in Andrew Ross Sorkin’s excellent, Too Big Too Fail, Fuld has spoken to the media only once since his fall from grace. That was last September, when Claire Baldwin, an intrepid reporter at Reuters, tracked him down at his house in Ketchum, Idaho. When Baldwin asked him how he was holding up, he said, “You know Freud in his lifetime was challenged, but you know what he always said, ‘You know what, my mother loves me.’ And you know what, my family loves me and I've got a few close friends who understand what happened and that's all I need.” He could not be reached for comment on this story.

William D. Cohan, a former senior-level M&A banker on Wall Street, is the author of The Last Tycoons: The Secret History of Lazard Freres & Co, and his new best seller House of Cards: A Tale of Hubris and Wretched Excess on Wall Street.