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BEWARE: In Bankruptcy, “Equity Compensation” Treated As Equity, Not Compensation

By Brian J. MacDonough on February 12, 2018

In a January 25, 2018 decision, In re: Lehman Brothers, Inc., the Second Circuit of the United States Court of Appeals upheld a lower court decision that restricted stock unit (RSUs) claims filed by former Lehman Brothers employees were securities claims, not creditor claims – putting the compensation claims behind the claims of creditors.  The Second Circuit accepted the lower court analysis that the employees “had … a choice” regarding compensation terms, which in our experience is often not true.  In reliance on the notion of choice, the Second Circuit agreed that, “Because [the employees] assumed the risk and reward expectations of shareholder when they agreed to receive compensation in the form of RSUs, [their claims] must be subordinated.”

Brian J. MacDonough

Brian J. MacDonough, co-chair of the Employment Department, counsels and represents executives and professionals in sophisticated employment and compensation matters and employment litigation. Read Bio