Former Lehman Brothers trader Jonathan Hoffman is in a dispute over a $83 million bonus he says he is still owed. Lehman’s trustee argues that his new employeer, Barclays, already paid it. (Ryan Collerd)

Before Lehman Brothers collapsed, pulling the trigger on the global financial crisis, a little-known bond trader was on a hot streak. Over two years, Jonathan Hoffman had brought the megabank more than $700 million in profits.

Just 35 years old, Hoffman was looking forward to an $83 million bonus. It was an eye-popping payday, even by Wall Street standards and a reflection of Hoffman’s reputation as a talented trader.

But Lehman’s bankruptcy threw Hoffman’s bonus into doubt. “Just plain [sucks]. No way to sugar coat it . . . i am pretty bummed,” Hoffman said in an 2008 email. “Never really had years like these last 2 before.”

More than seven years later, Hoffman is still fighting to collect that bonus from Lehman in what has become the ultimate Wall Street grudge match. Lawyers representing Lehman’s estate in a Manhattan bankruptcy court say Hoffman’s $83 million bonus was paid by Barclays, the giant British bank he joined shortly after Lehman collapsed. In other words, they say, he is trying to be paid twice for the same work.

The battle is one of the last hurdles to closing the books on the largest bankruptcy in U.S. history. It has thrown a spotlight on the failure of federal regulators to implement rules meant to curb excessive Wall Street pay after the 2008 financial crisis. The proposed rules are expected to be released soon, but critics wonder whether, after years of delays, they will be worth the wait.

“This was one of the most important parts of Wall Street reform, and it is one of the last to get any attention,” said Bart Naylor, financial policy advocate for Public Citizen. Meanwhile, he said, “the lure of Wall Street money hasn’t changed.”

Large bonuses have long been a key motivator on Wall Street, but they drew new scrutiny in the wake of the financial crisis after American International Group, the massive insurance company, took a taxpayer-funded lifeline of more than $100 billion. The company faced a backlash for setting aside millions of dollars for employee bonuses and retention pay, despite its bailout. Lawmakers were incredulous. AIG eventually agreed to revise some executive payments.

After Dodd-Frank

In 2010’s financial reform package, known as the Dodd-Frank Act, lawmakers called for regulators to curb compensation considered excessive or that exposed a company to significant financial losses. But progress on the rules has been slow, and Wall Street bonuses are back.

In 2014, the average bonus in the New York financial sector was about $172,900, up by 50 percent over the past three years, according to the New York Comptroller’s Office. And while the bonus pool at investment banks such as Goldman Sachs is expected to shrink this year, hedge funds and private-equity firms are still doling out multimillion-dollar awards to their most successful risk takers, compensation experts say.

Deutsche Bank co-chief executive John Cryan recently lamented at a Frankfurt conference that its bankers are promised bonuses too quickly.

“Many people in the sector still believe they should be paid entrepreneurial wages for turning up to work with a regular salary, a pension and probably a health-care scheme and playing with other people’s money,” Cryan said, according to news reports. “There doesn’t seem to be anything entrepreneurial about that except the compensation structures.”

With the Dodd-Frank regulations to curb excessive Wall Street pay stuck in bureaucratic limbo, critics say, there might be little incentive to change.

In 2011, a team of regulators, including the Securities and Exchange Commission and the Federal Reserve, issued a proposal that called for limits to pay and bonuses given to top executives at financial institutions. But critics pounced on the proposal as weak, noting that it did not address the compensation of traders who can draw some of the biggest bonuses. “The teeth were not sharp in that May 2011 proposal,” said Naylor of Public Citizen.

The Office of the Comptroller of the Currency, one of several agencies working on the proposal, “continues to work with other regulators and hopes to finalize the incentive compensation rule in the near future,” an agency spokesman said. Asked about the fate of the rules in a recent House hearing, SEC Chair Mary Jo White said: “We are all working on it very, very actively.”

In the meantime, Hoffman’s case promises to grind on for months.

From candy to bonds

The Philadelphia native wasn’t aiming to conquer Wall Street when he joined Lehman in 1994. His family ran a candy business — Frankford Candy sells chocolate products, including Hello Kitty candy necklaces and Avengers lollipops — and that is where he expected to build his career.

“I had thought I would end up taking a brief tour on Wall Street and end up in the candy business, but the detour got longer,” Hoffman told the Wall Street Journal.

He developed an expertise in trading U.S. government bonds. He used Lehman’s money to make bets on U.S. debt through what is known as proprietary trading. His trading style — he once called himself a “lone wolf” — made him one of Lehman’s greatest assets, and he struck a deal with the company guaranteeing him as much as 14 percent of the profit he generated in addition to his $200,000-a-year salary. By the time the bank collapsed in 2008, he had never had a losing quarter and was one of Lehman’s highest-paid employees.

“He was trading government bonds and related securities. This was not connected to the business lines that led to Lehman’s demise and Lehman doesn’t argue otherwise,” Hoffman’s attorney Douglas Baumstein said in a statement.

Yet Hoffman’s performance was buoyed by the volatile markets preceding the financial crisis. “They were challenging markets to trade and make sense of, so if you knew what to do, it could be very lucrative,” Hoffman testified, according to court documents. By the time Lehman collapsed, Hoffman was owed $7.7 million for the 2007 profits he generated and more than $75 million for 2008.

Like thousands of Lehman employees after the bank filed for bankruptcy, Hoffman found himself looking for a job — and without his promised bonus. He interviewed with several firms before accepting a position at Barclays, including securing an $83 million pay package.

Whether Barclays was fulfilling Lehman’s obligation to Hoffman with the $83 million payday or simply offering an enticement to a star trader is now the subject of a lawsuit in U.S. Bankruptcy Court in Manhattan.

“He is legally entitled to his compensation for the work he did and profits he earned for Lehman and to be treated like other Lehman creditors,” Baumstein said.

By the time Hoffman’s case was heard, Lehman’s bankruptcy had crawled its way through the courts over years. More than 100,000 brokerage clients were quickly repaid for money tied up in the bank’s collapse. The trustee had handed out more than $100 billion to Lehman’s creditors and customers.

But a few creditors are still haggling for the millions left in the estate, including some former Lehman employees seeking more than $150 million in bonuses.

The Lehman trustee charged with distributing the firm’s assets says Hoffman and the other traders have been paid enough. They “do not seek to be placed in the position they would have been in had [Lehman] not failed; they seek a windfall in the form of a double recovery that would make them better off than if there had been no bankruptcy,” James W. Giddens, the trustee, said in an April court filing.

Hoffman argues that the terms of his employment at Barclays were separate from what he is owed by Lehman. The Lehman bonus was scheduled to be paid out over two years, for example, not the seven years called for under Hoffman’s agreement with Barclays, according to court documents.

“When he negotiated his deal with Barclays, he was negotiating new employment,” Baumstein said. “He was never told that his negotiations would satisfy what Lehman owed him or asked to give up his claim against Lehman.”

And securing his multimillion-dollar deal with Barclays was not simple. In several meetings, including some he secretly recorded, Hoffman repeatedly brought up the issue of his lost compensation. He had also suffered a $60 million decrease in the value of his Lehman stock, according to court documents.

The first Barclays executive Hoffman met with rejected the idea of an $83 million pay package. Then Hoffman met with Rich Ricci, head of Barclays’s investment bank.

“I hear you on the comp,” Ricci told him, according to court documents. “And I think if we were to move we’re going to have to figure something out, because we want you motivated.” (Ricci, who would later face public anger for his own large pay package, retired in 2013 during a management shakeup.)

In the end, Hoffman struck a deal with Barclays that mimicked his Lehman compensation package. In addition to a $200,000 salary, he would receive a percentage of the profits he brought in. In fact, the Barclays agreement was “more favorable,” U.S. Bankruptcy Judge Shelley C. Chapman, who has been overseeing Lehman’s case, said in court documents.

“Jonathan was asking us to make him whole for what he thought he was entitled to from Lehman Brothers, which we ultimately did,” another Lehman executive, Michael Keegan, said in a deposition.

Hoffman received $100 million from Barclays for his trading performance between 2008 and 2010, in addition to the $83 million Lehman’s trustee says covered the bonus he was due from the bankrupt bank.

“It is no coincidence that Barclays agreed to pay Hoffman the same $83 million that he was owed by” Lehman, said Giddens, the trustee, in court documents. “Rather, the evidence shows that Hoffman sought — and Barclays agreed to pay — $83 million specifically to compensate him for the bonus he earned at” Lehman.

In her decision, Chapman acknowledged Hoffman’s talents. “By all accounts, Mr. Hoffman was a gifted trader who generated billions of dollars in profits for Lehman over the course of his employment,” she said in her October decision.

Chapman agreed that Hoffman was due some of his bonus, about $7 million. But she rejected the majority of his case and called one of his arguments “pure nonsense.”

Hoffman, who left Barclays in late 2014 when it closed its proprietary trading business, is appealing the judge’s decision. In the meantime, he is still trading.

“I currently use many of the same strategies I used working at banks to trade my own money,” he told The Washington Post. “I have confidence in the strategies, so I don’t mind accepting the full downside of my trades, which should be a testament to why it made sense for the banks I had worked for to hire me.”