Battle With Jimmy Cayne Reveals Lebenthal Heiress on Verge of Selling Firm

  • Former Bear Stearns chairman sues for repayment of unpaid loan
  • Wealth unit run by Alexandra Lebenthal struggled to take off

It was supposed to have been the Lebenthal family’s grand second chapter.

In 2007, Alexandra Lebenthal and her father, legendary municipal bond salesman James Lebenthal, paid a token $1,000 to get the rights to their name back from Merrill Lynch. The two had visions of reviving the Lebenthal business as a full-service, wealth-management shop for longtime clients.

Jimmy Cayne, left, Alexandra Lebenthal, center, and James Lebenthal in 2006.

Photographer: Patrick McMullan via Getty Images

One year later, with the financial crisis looming, their firm had run through its capital. Alexandra was paying employees’ salaries from her own checking account. That year she approached Jimmy Cayne, a longtime family friend and then-chairman of Bear Stearns Cos., and told him she was struggling. Cayne loaned her $1 million of his own money -- less than two weeks before his company collapsed.

The two eventually worked out a payment plan, and Lebenthal began sending him checks. But things changed about a year ago, according to a lawsuit Cayne filed in New York state court last month alleging that Lebenthal hasn’t made a payment on the loan since the end of 2015 and still owes him at least $438,000. Late last year, the suit claims, Lebenthal’s lawyer told Cayne the company was pursuing a sale and offered to resolve the loan for slightly more than $18,000.

Lebenthal declined to comment beyond saying in an emailed statement that she was looking forward to resolving the dispute. Her company operates successful asset-management and capital-markets businesses, she said, and is “working to finalize a transaction, which we hope to announce in the near future.” Cayne and his lawyers didn’t respond to messages.

Bond Brand

How did a prominent New York socialite and heir to a storied bond brand wind up in a legal battle with an old friend over what, for him at least, is a relatively small amount of money? The answer has everything to do with Alexandra Lebenthal’s struggle to keep her business afloat, especially after her father died in 2014. Since getting the Lebenthal name back, she has opened and shuttered a municipal bond business. In August, she closed a three-year-old wealth-advisory unit that never gained traction.

“The broker model they were running with, which had been very successful for Lebenthal over many years, just fell behind the new, emerging models” for asset management, said Jim Colby, a senior strategist who manages about $4.6 billion of VanEck municipal exchange-traded funds in New York. 

The Lebenthal story began almost a century ago, in 1925, when Alexandra’s grandparents, Louis and Sayra, founded Lebenthal & Co. as an odd-lot clearinghouse. Its goal was to make municipal bonds, primarily owned by institutional and wealthy investors at the time, available to individual holders.

James Lebenthal joined the family business in 1967 after a stint on the West Coast as a filmmaker, journalist and copywriter. Through dozens of whimsical ads featuring him popping out of sewers or tossing garbage into incinerators, and with taglines like “bonds are my babies,” he popularized municipal bonds, at least among New Yorkers.

James retired as president in 1995, handing the reins to Alexandra, who was 31 at the time. Six years later, she sold the business to insurer Mony Group Inc.’s Advest subsidiary for $25 million. Merrill Lynch & Co. bought Advest in 2005, retiring the Lebenthal name.

“That rich, historic background, it’s the stuff of which legends are made,” said Ken Langone, co-founder of Home Depot Inc. and a longtime Lebenthal family friend.

Name Back

Alexandra left the business the day the Merrill deal closed. But she wasn’t out of work for long. She and her father started Alexandra & James in 2006, providing wealth management and financial concierge services for families with a net worth of $2 million to $20 million. She was chief executive officer, and he was creative director of the new firm, which began as a unit of Israel Discount Bank of New York.

Alexandra decided within a year that she wanted her family’s name back. She went to Greg Fleming, then a senior executive at Merrill Lynch and later president of Morgan Stanley’s wealth-management division, who helped broker the deal.

With the brand in hand, Alexandra created Lebenthal Holdings LLC and revived Lebenthal & Co. as a capital-markets unit that could underwrite municipal bonds as well as corporate debt and equity. She also started an asset-management business and tapped her brother, James, to be the firm’s chief investment officer and portfolio manager.

The company’s reputation and its status as a woman-owned firm helped it land a spot on some of the biggest debt and equity deals in 2010. Lebenthal says on its website that it became the top woman-owned firm underwriting corporate debt and equity in 2011.

Society Scene

Lebenthal is a fixture on New York’s client-rich society scene. In recent years, she attended black-tie balls for the New York City Ballet, the School of American Ballet, the New York Botanical Garden and the Museum of the City of New York, posing for photographs in evening gowns and sharing tables with some of Wall Street’s top executives.

The 52-year-old mother of three serves on the board of Savvy Ladies, which helps women with financial literacy, and was chairman of the botanical garden’s Conservatory Ball in June. She was also a co-founder of the United Jewish Appeal’s Women’s Executive Circle.

Since undergoing a procedure in September to relieve a tremor in her left hand that made eating and pouring drinks difficult, she has grown her hair back in a short, platinum-blonde pixie cut.

While the firm’s capital-markets and asset-management units thrived -- assets under management climbed in recent years to surpass $1.4 billion, SEC filings show -- the municipal bond business struggled.

Municipal Woes

Lebenthal hired experienced municipal bond traders and salesmen from UBS Group AG and Citigroup Inc. but didn’t build a banking business. It was lead manager on only two deals, a $26.5 million bond for Prince George’s County, Maryland, in 2009, and a $3.8 million issue for the town of Colonie, New York, in 2010, according to data compiled by Bloomberg.

Lebenthal and her father brought different styles to the business. While the older Lebenthal’s office was with his traders, she preferred to sit separately behind her grandmother’s desk, which she moved into the firm’s Manhattan office. Employees liked her, but she rarely ventured onto the floor, according to two former Lebenthal employees who asked not to be identified.

With underwriting opportunities diminishing and the amount of municipal debt dropping to a multi-year low, the firm fired 15 employees in 2014 and ceased underwriting U.S. municipal-bond offerings and selling to institutions. Instead, the company said at the time, it would focus on wealthy clients.

Wealth Advice

Lebenthal started its wealth-advisory unit in October 2013. It was led by three outsiders: former Neuberger Berman Inc. CEO Jeffrey Lane; Frank Campanale, who ran Smith Barney Consulting Group; and Andrew Grillo, a former Smith Barney regional director.

In interviews at the time, Lebenthal said she hoped the wealth unit would garner at least $25 billion in assets under management within five years. She promised Grillo a budget of $120,000 a month for marketing activities to promote the business and recruit advisers, according to an arbitration suit Grillo filed last year against Lebenthal with the Financial Industry Regulatory Authority.

But the wealth-advisory business began eating into the firm’s resources, with profits from other divisions funding its losses, a person familiar with the unit’s performance said. Lebenthal soon pushed Grillo aside and assumed control, according to the complaint.

Grillo said in his suit that he was given a total of $3,500 for marketing activities during his two years with the firm and prohibited from marketing to independent advisers. Instead, he said, he was told Lebenthal would buy a firm that had a stable of independent advisers.

“Lebenthal’s attempts to purchase another firm, however, were unsuccessful and Lebenthal Wealth Advisors was allowed to languish and fail,” Grillo said in his complaint.

Division Closed

Grillo’s arbitration suit was made public when the firm sued Grillo in New York state court in August, alleging his employment agreement stipulated that he litigate any claims in court, not arbitration. Grillo declined to comment through his attorney.

Lebenthal encouraged a team of advisers managing more than $750 million in client assets to leave the company in June before shuttering the division two months later to focus on the capital-markets and asset-management businesses, according to the person familiar with the unit. At its peak, the wealth unit had five teams of advisers and about $950 million in assets under management, Lebenthal said in interviews in August.

Cayne, 83, said in his lawsuit that the $1 million loan was a personal one, not to the company. After his attorney demanded full repayment in December, Lebenthal’s personal lawyer told him she didn’t intend to pay the outstanding balance, the complaint said.

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