Foul Trouble

When ex–Bulls star Scottie Pippen needed a new financial adviser, he turned to a smooth-talking investment guru named Bob Lunn, whose clientele included a cross section of Chicago's elite. For a time the two made a terrific team, whether golfing, socializing, or talking almost daily about money. But then their relationship unraveled into a bitter dispute that has left Lunn bankrupt—and Pippen claiming in court he has lost millions of dollars.

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Like a dotcom stock levitating before the bubble burst, Robert J. Lunn rose high from humble roots. But the story of his ascent is tinged with mystery, if only because of the difficulty in getting parts of it to check out. He started life in the working-class neighborhood of Bridgeport, on Chicago's South Side, the youngest of Bill and Rose Lunn's five children. Rose, a pious Italian American woman, dreamed that her altar-boy child, born when she was 42, might someday be a priest or a doctor. Bill worked in a steel mill and eventually drank himself to death, Lunn says. By the time Bill and Rose divorced, around the time Bob was 13, Bill had moved the family to Oak Lawn, at 87th and Cicero, and become a journeyman roofer. In the summers between his years at Brother Rice High School, Bob worked for his dad, hauling buckets of gravel onto rooftops and spreading 500-degree tar in stifling heat. It was miserable, dirty work that hardened his determination "to figure out another way to make a living," he says.

A standout athlete growing up, Lunn says he went to Northwestern University starting in 1968 and played outfield for two seasons on the school's baseball team. Three decades later, serving on the board of trustees of the University of Chicago Hospitals, he claimed in a biographical sketch that he had earned a bachelor's degree in anthropology from Northwestern and a master's in finance from the University of Chicago. Yet the U. of C. has no record of Lunn's enrollment as a student (he says now that he took night school classes there in economics and finance). A spokesman for Northwestern says Lunn did not receive a degree there, and the school's athletic department says Lunn's name does not show up on any of its baseball team rosters from the years in which he claims to have played. The only Robert J. Lunn that turns up in the school's files took some continuing education classes in 1977 and 1978. (Lunn says he can't explain why his name is missing from the school's records.)

At some point in the early seventies, Lunn got a job as a runner for a grain exporter at the Chicago Board of Trade. Soon he became "obsessed," he says, with the workings of financial markets. After a day of hustling in the pits, he would head upstairs to the offices above the trading floor to soak up everything he could from the brokers and salesmen.

Lunn's early career included stints trading convertible bonds at what became known as Drexel Burnham-where he sat a few feet away from a young hotshot named Michael Milken-and trading equities at William Blair & Co. in Chicago. Around the mid-seventies he got his big break, landing a job at Morgan Stanley with a six-figure salary. The blue-collar kid from the South Side of Chicago hardly fit in among the Harvard MBAs at the patrician Wall Street firm. But his apprenticeship in the trading pits of Chicago and on the bond trading desk at Drexel had equipped him to excel at a moment when options and other esoteric financial products were exploding in variety and complexity on Wall Street. He rose quickly through the ranks, in 1987 becoming a member of the equity division operating committee and a co-head of private client services, the unit that offered asset management advice to Morgan Stanley's high-net-worth customers.

Lunn was briefly married around 1977, and the relationship produced a daughter before the couple were divorced. He married his current wife, Laura, in 1984. (They live in Hyde Park with their two sons; a daughter died in infancy in 1991.) Although Lunn made his home in Chicago, he spent his workweeks in New York. Needing a break from the grind, he left Morgan Stanley in 1993 and vowed to stick closer to home. But soon Lehman Brothers offered him the chance to run its retail business and bring home a fat paycheck, and he again began spending his weeks in New York. At Lehman, Lunn served on the eight-person operating committee, putting him near the top of the food chain there.

A former co-worker during Lunn's Lehman Brothers years says, "Bob always had the salesman in him. I don't think he had the investor in him." He remembers a colleague given to excess and flash-Lunn stayed at the posh St. Regis in New York and traveled by corporate jet. "I saw this grandiose persona," the former colleague recalls. "The private jet was all part of the image, all part of what was important to Bob. He lived like a rock star."

Whatever Lunn's merits as a financial whiz, he had an undeniable gift for winning the hearts-and the accounts-of wealthy, sophisticated clients. Indeed, few people could mount the kind of charm offensive for which Lunn became known. The Lehman Brothers colleague recalls one day when Lunn was taking clients to lunch at the Standard Club, a few blocks away from his office. "Anybody in the whole world would just walk over to the Standard Club," he says. "Bob had a big white stretch limo show up. That was his kind of showmanship."

The former Lehman hand remembers another occasion when Lunn took a long-distance call in his office. The person on the other end apparently complained about the weather where he was, and Lunn, looking out his window at a beautiful, sunny day, replied, "‘It's pouring down rain here,'" the colleague recalls. "Now, why would anybody make that up?" Another person who has dealt extensively with Lunn offers a theory: "He was empathizing with the guy. Lunn is a great empathizer, maybe to a fault. He is like eating comfort food-a great guy to be with."

In my own conversations with Lunn-at his house, in my office, over lunch, on the phone-I could see why people were drawn to him. He's articulate, engaging, and likable, and he didn't just talk about himself. He also learned things about me-including that I grew up in Cincinnati and that my father had been a minor-league pitcher in the Chicago White Sox organization. Then one day Lunn mentioned that he too had been a minor-league baseball player, having signed for a $15,000 bonus in 1970 with the Cincinnati Reds-the team I had grown up rooting for. He said he played for a summer before concluding that a career in professional baseball could not satisfy his financial cravings. "Willie Mays had recently signed a contract for [only] about $100,000, and I knew I wasn't Willie," he told me.

Baseball, my hometown-it seemed that Lunn and I now had things in common, a basis for becoming buddies. At first I had no reason to doubt him, but when I later asked what team he had played for, he couldn't remember. A check with Minor League Baseball revealed that his name did not appear in its database of former players. When I brought this to Lunn's attention and asked what town he had played in, he replied, "Lexington," which is not far from Cincinnati. The problem is that the Reds did not have a minor-league affiliate there; indeed, by 1970 Lexington had not been home to a minor-league franchise for several decades. (Eventually Lunn said he could not "confirm" his baseball claim.)

In 1991, Scottie Pippen made a prudent financial decision that he soon came bitterly to regret. Facing the uncertainty of free agency when his contract expired in 1993, he asked the Bulls for a five-year, $18-million extension. For Pippen, who had grown up poor in tiny Hamburg, Arkansas, and whose ailing back raised questions about his future longevity and earning power, the extension was a chance to lock in personal financial security, even if it meant locking out the potential to earn greater riches as a free agent. Jerry Reinsdorf, the Bulls chairman who negotiated the deal, warned Pippen he would feel underpaid within three years. But Pippen replied, "You'll never hear from me."

Yet by 1994, with Pippen a star and player salaries skyrocketing, he was indeed earning well below his market value. He demanded to have his contract renegotiated or be traded-both of which the Bulls refused to do. Over time his grievance festered while the Bulls continued to ignore his demands. It probably didn't help his cause that Pippen had racked up an arrest on a gun charge (later dropped), two paternity suits, and an arrest on domestic battery charges (also dropped)-and that he had childishly refused to play the final 1.8 seconds of a playoff game because he wasn't going to get the ball for the final shot. By the 1997-98 season, Pippen already had been named one of the 50 greatest players in the history of the National Basketball Association, yet he was making less money than five of his own teammates. When free agency beckoned in 1999, he couldn't wait to claim the riches, perks, and respect he had long been denied.

In January 1999, Pippen signed a complex deal, negotiated by his Memphis agents, Jimmy Sexton and Kyle Rote Jr., that finally made him a very wealthy man. Over the next five seasons, Pippen would haul down nearly $100 million in salary, incentives, and endorsement fees. The year he signed that deal, Pippen made another significant change in his financial affairs-he terminated his relationship with Morgan Keegan, the Memphis company that long had served as his money adviser. Pippen claims the firm took "undue advantage" of him, according to court filings. (A spokesman for Morgan Keegan said the company would not comment on any past client dealings.)

Whatever Pippen's grievance, it's possible that he had also grown impatient with Morgan Keegan's conservative-some would call it prudent-investment strategy. Pippen's portfolio was loaded with "the traditional broker stuff," says Lunn. "He was ‘long' the S&P 500"-meaning he owned the bluest of blue-chip stocks. Yet in 1999, there was a gold rush going on in the kind of technology highfliers Pippen apparently didn't own. As Lunn puts it, "He'd socialize with his buddies and hear they were making a ton of money in some dotcom deal."

Lunn had served a little more than two years at Lehman Brothers when the younger of his two sons was diagnosed with ataxia, a nervous system disorder that causes gradual deterioration of the brain stem (the condition subsequently stabilized, Lunn says). Once again the grind of spending his workweeks in New York became too much, Lunn says, so he left Lehman and in 1996 launched his own financial services business in Chicago.

Lunn Partners was set up as a boutique for wealthy investors, offering an asset management service that invested clients' money in several actively managed funds, and an investment advisory service offering advice on risk and asset allocation. But what really differentiated the firm was its private equity side, which made risky but potentially lucrative investments in small, usually nonpublic companies. "Bob sold Lunn Partners as a place where rich people congregated, and for a fee he could raise money for people who needed capital," says the creditor. "And so people pitched deals to Lunn, and Lunn then tried to peddle the deal among his clients and circle of wealthy contacts. In the late 1990s and early 2000s there were quite a number of these deals, until Lunn Partners became, in effect, a loose private equity shop."

By then Lunn's well-established status as a Wall Street big shot had brought him into contact-and friendship-with an exclusive network of Chicago's wealthiest, savviest wheelers and dealers. Perhaps no relationship was more crucial to Lunn than his friendship with Peer Pedersen, a well-connected Chicago lawyer and investor with an impressive track record of successful deals. Lunn had first met Pedersen in the late eighties, while still at Morgan Stanley, and the two had become increasingly close. "Peer and Bob were at one point inseparably good friends," says the creditor. "They'd fight sometimes like cats and dogs, but if they were on a golf outing they were the best of friends." (Pedersen did not return phone calls seeking comment for this article.)

Lunn says his relationship with Pedersen was "more personal than business." But the two of them invested alongside one another in numerous private equity deals, and Pedersen's law firm, Pedersen & Houpt, did legal work for Lunn Partners. Having Pedersen's stamp of approval meant that Lunn "had been blessed," says the creditor, in the eyes of other wealthy investors. And so people such as Donald Kelly (former chief of Esmark), Dean Buntrock (former chairman and chief executive of Waste Management), Craig Duchossois (CEO of Duchossois Industries and son of the horseracing mogul Richard Duchossois), Richard Heise Sr. (developer of One Financial Place and other commercial properties), and other big hitters wound up investing in Lunn's deals or turning over money for Lunn Partners to manage.

For a time, at least, Lunn's touch was golden. An investment he regularly cites as evidence of his acumen is Continental Community Holdings, a private owner and operator of manufactured housing parks that by several accounts was a home run. Lunn unearthed enough other winners that some investors still swear by him. "I've done a lot of deals with him, and most have been very successful," says Howard Conant, a former chairman of Interstate Steel Company and a creditor of Lunn's. And C. Barry Montgomery, a Chicago trial lawyer, says the performance of his investments with Lunn has been "heavily on the plus side."