Former Nova Chemicals CEO Jeffrey M. Lipton says the "tenor of my life today is very different" than it was two years ago, when disastrous investments in Arizona real estate bankrupted the Sewickley Heights resident and his wife, Shelley.
Their July 2011 bankruptcy petition revealed the extent of their predicament: assets of $13.8 million and liabilities of $98.8 million. Bankruptcy court records indicate Mr. Lipton had loaned $33.5 million to ventures he was involved with, ventures he said in the filing were worthless. Incredibly, not even the $53 million Mr. Lipton was paid in 2009 prevented the Bronx-born, Harvard MBA and his wife from going bankrupt.
The Liptons owed their biggest secured creditor, PNC Bank, $14.1 million. The Pittsburgh bank -- which had helped Nova Chemicals when it moved its executive offices from Calgary, Alberta, to Pittsburgh during Mr. Lipton's tenure -- held mortgages on the Liptons' home in Sewickley Heights and one they were building in Paradise Valley, Ariz. Bankruptcy documents indicate other financing the bank had provided was secured by Mr. Lipton's real estate partnerships; tax refunds he was entitled to; his Nova stock; payments he was entitled to receive from the company; and his other investments.
Nova Chemicals, a plastics and chemicals producer, was among Mr. Lipton's many creditors. The company sued Mr. Lipton in June 2011 for defaulting on an agreement to reimburse it for $884,200 in Canadian taxes paid on his behalf.
Eleven days after that lawsuit was filed, the Liptons sought bankruptcy protection, freezing the efforts of Nova and other creditors to collect.
Two years later, Mr. Lipton, 71, says his financial life has returned to what it was before the bankruptcy.
He recently accompanied his 12-year-old son, David, a member of the USA Karate's junior national team, to Medellin, Colombia, for the Junior Pan American Karate championships.
"If you had a snapshot of my balance sheet today, you would say I was quite comfortable, maybe more than that," Mr. Lipton said during an interview this month with the Post-Gazette.
He said his only debts are the mortgage on his 10,300-square-foot Sewickley Heights home and delinquent Pennsylvania taxes dating back to 2006 that he said would be paid within a matter of days. Liens filed by the state Department of Revenue last year put the tax bill at $105,500.
"I haven't missed many beats in what I've wanted to do," he said. "The way I'm living today isn't much different than the way I was living before."
The son of parents who operated a grocery store, Mr. Lipton takes pride in his working-class roots, mentioning the one-bedroom Bronx apartment he occupied with his parents and sister. After nearly a 30-year career at DuPont, he joined Nova's parent company in 1994 as chief financial officer. He was named CEO in 1998 when Nova's parent was acquired and the chemicals company was spun out. Over the next 11 years, Nova's revenue tripled to $7.4 billion.
After achieving financial success and then tumbling into bankruptcy, Mr. Lipton attributed the turnaround in his personal finances to several factors. He said income as a consultant to private equity funds enabled him to keep current on mortgage payments. Among the assets that were off limits to creditors was a retirement account he valued at $1.2 million at the time of the bankruptcy. Investments in that account have performed well since the stock market hit bottom in March 2009, he said.
In November 2011, a bankruptcy court judge discharged many of the couple's debts.
"A bankruptcy is designed to basically let you get a fresh start," Mr. Lipton said.
Boom, then bust
His bankruptcy -- one of 1.4 million nonbusiness bankruptcies filed in 2011 -- can be traced to his decision to guarantee millions of dollars of loans used to purchase huge tracts of undeveloped land in the Phoenix area. The loans went to Charles Sorensen, the father-in-law of Mr. Lipton's daughter and manager of the development projects. Mr. Sorensen was also bankrupted by the ventures and was recently indicted in connection with some of the projects.
When the Phoenix real estate market skyrocketed in the early 2000s, the partnership prospered.
"The early investments did real well. I said, 'This sounds easy,' " Mr. Lipton recalled.
As the market softened, then collapsed, he took a more active role in trying to restructure Mr. Sorensen's faltering ventures. As part of that, he guaranteed millions of dollars in loans made for Mr. Sorensen's projects.
"I did [the guarantees] all knowingly and I had no dream that Arizona real estate would fall apart as dramatically or rapidly as it did," Mr. Lipton said.
He was not the only one.
Believing that double-digit price increases would continue, investors purchased huge tracts of land in the Phoenix area, hoping to sell them later for a profit.
"Our market was probably one of the nuttiest markets in the nation, along with Las Vegas and Florida," said Laura Joyner, a Scottsdale, Ariz., real estate agent.
Little thought was given to the consequences if prices reversed direction. When they did, those who relied on debt were hurt the most. Many investors, like Mr. Lipton, who backed the debt with personal assets were forced into bankruptcy.
"You had a lot of running and gunning," said Terry McDonnell, publisher of Business Real Estate Weekly of Arizona. "Nobody thought that it would have the magnitude of the bottom-out that it did."
While Mr. Lipton was not the only investor who went bust betting large on the real estate bubble, his fall was all the more stunning given his credentials and his resources.
As Nova's CEO, he was paid $11 million or more annually to manage a company that generated $7 billion in annual sales. He was also a director of Pittsburgh-based U.S. Steel, chairing that company's audit committee until resigning in November 2010.
Mr. Lipton's 2009 payroll income of $53 million included a $36.8 million lump sum pension payment he received when he retired from Nova in May 2009. The sale of that company, which faced possible bankruptcy because of a credit crunch of its own, was completed two months later.
Mr. Lipton says he accepts "99 percent" of the responsibility for his real estate losses.
"When you make mistakes, you've got to accept the fact that you made mistakes," he said. "Don't invest in things you don't know a lot about."
Court documents indicate Mr. Lipton blamed some of his problems on The Ayco Co. Nova Chemicals hired the Saratoga Springs, N.Y., firm in 2001 to act as his investment adviser, financial counselor and to prepare his tax returns. Mr. Lipton alleged Ayco mishandled his 2005-07 tax returns and he wanted to submit his claim to arbitration, according to documents filed in federal court in Pittsburgh.
Ayco failed "to obtain multimillion dollar [tax] refunds" the Liptons were entitled to, leaving the couple with less cash and requiring them to take on more, higher priced debt for their real estate ventures, according to a letter Mr. Lipton's lawyer wrote to Ayco in April 2012. As a result, the Liptons were "unable to negotiate with real estate lenders when market values dropped, which caused large real estate losses and forced them into bankruptcy," the lawyer wrote.
Ayco went to court to block the arbitration. Its request was denied in August 2012 by U.S. District Judge Arthur J. Schwab.
Mr. Lipton declined to comment on the status of the dispute.
Family ties that bound
Investors who trusted Mr. Sorensen with their money and the lawyers who cleaned up the financial mess that ensued say Mr. Lipton's biggest problem was throwing in with Mr. Sorensen, whose stepson, Greg Sherman, married Mr. Lipton's daughter, Dana.
"Some of my clients probably think the worst thing [Mr. Lipton] ever did was run into Chuck Sorensen," said James Wees, a Phoenix attorney hired to represent investors who instituted personal bankruptcy proceedings against Mr. Sorensen two months after the Liptons declared bankruptcy.
Mr. Wees' clients accused Mr. Sorensen of operating a Ponzi scheme and diverting some of their money to his personal bank account. A 13-count criminal indictment filed against Mr. Sorensen in July is based on those allegations.
"My clients probably lost a collective $5 million," Mr. Wees said.
Mr. Sorensen and his wife, Stephanie, filed for bankruptcy in September 2011. They listed assets of $68,143 and liabilities of $116.3 million.
Their creditors included Mr. Lipton, who was owed $2.9 million. Court documents indicate that of $18,245 recovered by the Sorensens' unsecured creditors, none of it went to Mr. Lipton.
In a brief interview with the Post-Gazette shortly before his arrest, Mr. Sorensen, 70, said he started buying properties with Mr. Lipton in 2001 or 2002. He denied causing Mr. Lipton's financial problems, attributing them to "the ebb and flow of the real estate market."
"In 2008, everything changed," said Mr. Sorensen, who has pleaded not guilty and is free on a $30,000 bond.
He declined further comment.
Mr. Lipton said he didn't know enough about Mr. Sorensen's indictment to comment on it.
"I just hope things work out for him," he said.
In an October 2009 deposition, Mr. Lipton testified he had invested in about a dozen real estate projects with Mr. Sorensen. He said two or three of the projects had been sold and he estimated that he was providing $500,000 or $600,000 in funding monthly for the remaining ventures.
When asked how he came to guarantee the loans, Mr. Lipton testified that it was "because I could afford to be the guarantor and the banks would accept me."
In a Jan. 8, 2007, letter to Mr. Sorensen written on Nova stationery, Mr. Lipton reviewed several plans Mr. Sorensen had outlined for restructuring a number of their real estate ventures, including projects later cited in Mr. Sorensen's indictment. He told Mr. Sorensen, "This is a big complex story that we need to finish sorting out and get simplified, and put in writing."
Then he expressed hope for a turnaround.
"If we make a good deal in the longer term, the big money involved will mean big fights -- unless everything is clearly written and agreed to," Mr. Lipton wrote. "And we should get everything done now while people are feeling negative about housing rather than trying to do it when things start to look better."
The restructurings included two loans from bankrupt Mortgages Ltd., a Phoenix-area lender, that were modified in late 2008. Mortgages Ltd. dealt with borrowers who were unable to obtain bank financing. It charged high rates and fees. It collapsed in June 2008, weeks after its chairman committed suicide.
Mortgages Ltd.'s portfolio included two loans guaranteed by the Liptons and the Sorensens. Bankruptcy court documents filed in late 2008 indicate the loans carried interest rates of 12.75 and 13.25 percent, and had unpaid balances totalling $46.4 million. One of the loans, with an unpaid balance of $30.4 million, was in default.
The judge overseeing Mortgages Ltd. bankruptcy agreed to modify the payment terms by extending their due dates, according to court records. The Liptons and Sorensens were required to pay about $2 million in fees to extend the loans. The interest rates stayed the same.
The hundreds of acres of real estate the loans financed were eventually foreclosed on and sold for far less than the amount of the loans, according to Mark Winkleman, the court-appointed attorney overseeing the Mortgages Ltd. bankruptcy.
"Of the large number [of borrowers] we've dealt with, Mr. Lipton conducted himself as honorably as anybody," he said.
Credit crisis knocks Nova
As Mr. Lipton's real estate fortunes were declining, Nova was facing a credit crisis of its own.
The price of the company's stock -- the source of a considerable portion of Mr. Lipton's wealth -- tumbled from $33 a share in 2006 to as low as $1.05 in February 2009 as the company faced a liquidity crisis.
As lenders retrenched following the collapse of financial markets in September 2008, Nova was in danger of violating its credit agreements and faced what its chief financial officer said was "a serious risk of insolvency at the end of the first quarter," according to a company securities filing.
In January 2009, Mr. Lipton began meeting with officials of International Petroleum Investment Co., a Middle Eastern investment group that had expressed an interest in acquiring Nova. A month later, Nova agreed to the group's $2.3 billion offer. The new owners moved the company's headquarters back to Calgary.
Mr. Lipton said he learned as a college athlete to manage several matters at the same time, adding that managing his real estate investments never distracted him from his responsibilities at Nova.
Nova spokesman Pace Markowitz declined to comment on the company's lawsuit against Mr. Lipton.
The company had established a line of credit in 2002 at Toronto Dominion Bank to secure payment of Mr. Lipton's Canadian taxes. According to a complaint filed in Allegheny County Common Pleas Court in June 2011, Canadian tax officials drew on the line of credit in July 2010 to cover the unpaid taxes.
The lawsuit states that Mr. Lipton subsequently promised to repay Nova for the taxes in monthly installments, plus 8 percent interest. He made three payments through September of that year. Then the payments stopped, according to the lawsuit. Nova sued for the unpaid $691,000 plus interest and expenses.
Two years before their bankruptcy when Mr. Lipton retired from Nova, the Liptons had put their Timberhill Drive home on the market, listing it for $7.8 million. In their 2011 bankruptcy filing, the Liptons valued the home, which featured a nanny suite apartment and a sun room with a built-in pizza oven, at $2.2 million.
But they said lenders had $16.1 million in claims against the Sewickley Heights property.
The same filing valued their uncompleted Arizona home at $2 million and estimated it would take at least $6 million more to finish it. They listed secured claims of $14.1 million against the Paradise Valley property.
"The filings were all based on what the market was then," Mr. Lipton said.
The two homes were so encumbered that Rosemary Crawford, the court-appointed attorney overseeing their bankruptcy, did not want the properties because there was nothing there for the couple's unsecured creditors. That freed lenders holding mortgages on the homes to foreclose, which they did not.
The Liptons sold their still-unfinished Arizona home last year for $4.3 million, according to Maricopa County real estate records.
As to what the gruelling two-year experience taught him, Mr. Lipton offered two lessons, one financial and one personal.
"Do as much homework as you can before you invest in something that's new and different, and don't learn the hard way like I did," he said.
The other is based on the long climb he has made since his youth.
"Keeping your head up and not feeling sorry for yourself is nine-tenths of the battle," he said.
Len Boselovic: firstname.lastname@example.org or 412-263-1941.