Cantor's Lutnick Tells Court U.K. Carbon Business `Dream' Was a Failure
Howard Lutnick, chairman of Cantor Fitzgerald LP, said that its U.K. carbon credits brokerage was a money-losing failure, with business projections based on dreams.
Cantor is suing Stephen Drummond, a former executive at the brokerage, in London for the return of $2 million it says it lent him while he was running the unit, CantorCO2e. Drummond is countersuing, claiming he was wrongfully dismissed in 2009 for failing to tell the company he was in talks with a competitor about a job.
Lutnick said on the witness stand today that since Drummond left, Cantor has been trying to turn Drummond’s operation into revenue.
“We can’t figure out how to make money from it,” he said. “The pipeline that Mr. Drummond talked about was a dream. None of Mr. Drummond’s projections came true.” The business was built on a “giant series of ifs,” he said.
CantorCO2e this year closed its London desk and shifted its business to the U.S., where it is hiring additional workers, as brokers lost share in the market for carbon permits and credits to the European Climate Exchange in London, the biggest bourse for emissions trading.
CantorCO2e and EcoSecurities, the competitor Drummond was in discussions with, both manage projects that receive Certified Emission Reduction credits under the 1997 Kyoto Protocol. JPMorgan Chase & Co. bought EcoSecurities last year for about $200 million. Drummond and Carlton Bartels formed CO2e.com in 2000 and merged it with Cantor’s environmental brokerage in 2007, according to a company website.
$2 Million Loan
Earlier this week Cantor lawyer Paul Nicholls said that the firm lent Drummond, the most senior employee at CantorCO2e, $2 million to help him buy a home in Oxford, England. The 2008 loan agreement said Cantor wouldn’t ask for the money back if Drummond gave up equity in the company and agreed to stay at CantorCO2e for five years, Nicholls said in court papers.
Cantor fired him a few months after providing the loan when it discovered he had been meeting with EcoSecurities. Drummond claims he was wrongfully dismissed, and says he doesn’t owe the company money, because the $2 million was paid to him in exchange for his shares when Cantor bought the business.
Lutnick said today he regarded the money as a payment to ensure that Drummond would stay with CantorCO2e.
“If he just stayed loyal to the company, and stayed with the company he would net $2 million,” Lutnick said. “But I knew and he knew that his equity wasn’t worth $2 million.”
Cantor would give Drummond back his equity in the business “right now” if he paid back the $2 million, Lutnick testified.
The cases are: Cantor Fitzgerald LP v. Stephen Drummond and Stephen Drummond v. CantorCO2e Limited.