In 2008, After 34 Years Working For The Same Company, He Owned More Than 6 Million Shares Of Company Stock. Eight Months Later, The Company Was Bankrupt and The Shares Were Nearly Worthless. The Story Of Joe Gregory Holds An Important Lesson For Every Investor
After three decades climbing to the top of one of Wall Street's most powerful firms, a single executive held millions of shares in the company he had given his career to. Then came the week that changed everything.
As of January 31, 2008, Joseph M. Gregory owned 6,188,903 shares of Lehman Brothers, according to the firm’s 2008 proxy statement. The same proxy listed another 700,000 shares he could buy within 60 days of that date, as a separate line. By the proxy’s own count, his holdings came to 1.31% of Lehman’s outstanding stock.
On September 15, 2008, Lehman filed the largest bankruptcy in U.S. history, and its stock was left nearly worthless.
A Whole Career at One Firm
Lehman’s 2008 proxy lists 1974 as the year Gregory joined, which works out to a period of 34 years by 2008. Other sources give different numbers. Fox Business reported 30 years, and NBC said “more than two decades.” Gregory rose to president and chief operating officer. For comparison, the same proxy shows Chief Executive Richard Fuld, who joined in 1969, owning 10,851,590 shares.
How Quickly the Floor Gave Way
Lehman’s stock lost 73% of its value in the first half of 2008. The firm warned ahead of time that it would post a second-quarter loss of nearly $3 billion. On June 12, 2008, a Form 8-K announced that Herbert H. McDade III had been named president and chief operating officer, replacing Gregory. The filing did not say what Gregory’s new role would be. NBC reported the shares at about $22.70 after a 4.4% one-day drop, in a week when they fell about 30%.
On September 9, 2008, the stock fell 45% to $7.79 after reports that Korea Development Bank had put talks with Lehman on hold. The next Monday, Lehman filed for Chapter 11. In the first half hour of trading after the filing, the shares fell 94% to about $0.20, according to the Motley Fool. A year earlier they had traded at roughly $58. UPI put the fall at 95%.
Why Shareholders Stand Last in Line
In a bankruptcy, shareholders get paid last. Creditors, employees and tax authorities all have claims that come first. The Motley Fool notes that shareholders typically end up with nothing. Fox Business later reported that Gregory sold assets including a helicopter and homes in Bridgehampton and Lloyd Harbor, New York.
One Company, Three Exposures
The lesson here is about how a financial life is built. Gregory’s job, his pay and his savings all depended on the same company. When everything rests on one company, one failure can take all three at once.
That setup is common. In the FINRA Foundation’s latest National Financial Capability Study, 41% of non-retired respondents said they have a defined contribution retirement plan such as a 401(k). Many workers also receive restricted stock, stock options or discounted shares through purchase plans, and some get their 401(k) match in company stock. Each of these makes sense by itself.
Added together, they can make one employer both the source of a household’s income and the biggest holding in its savings. The risk is built in: the same event that threatens the paycheck also threatens the savings. It also tends to hit when finding a new job is hardest, because a company’s collapse often comes in the middle of trouble across its whole industry.
A Simple Audit Worth Running
Start by counting how much of your total net worth depends on your employer. Include retirement accounts, vested and unvested equity awards, and shares bought through purchase plans. Then remember that your job is already a large interest in that company, because your future earnings depend on the same business. Seeing the full picture in one place is the right starting point for any decision about concentration.
Lehman’s 2008 proxy shows one moment: a career that began in 1974 and 6,188,903 shares owned as of January 31, 2008. By September 15, 2008, the company behind both was in bankruptcy court.
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AJ spent 10 years writing about financial markets at The Motley Fool. His coverage centers on technology stocks and the broader macroeconomic trends, from interest rates to geopolitics, that shape where markets are headed next. AJ is drawn to the stories where big-picture economics and individual companies collide.
