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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Over the course of 2003, Pippen's patience apparently was running out. In February he inquired about the status of his investments. In the fall he retained a Cleveland financial adviser named Joe Lombardo-who has aided other professional athletes in disputes with money managers-to help extricate him from his Lunn Partners investments. Lunn tried without success to negotiate a settlement with Lombardo (who declined to comment for this article). But he also failed to deliver on promises to liquidate various investments of Pippen's, according to court documents.

Finally, in March of last year Pippen sued Lunn (and Pedersen & Houpt, which had handled the legal work) over the Gulfstream II. Pippen claims in court papers that Lunn "introduced" him to the deal and mismanaged the agreement, to Pippen's detriment. And he calls the plane an "investment" that should have allowed Pippen to "realize a profit." Lunn responds that rather than bring the deal to Pippen, he "did all he could to counsel Pippen against it," court papers say. And he now bristles at the claim that the plane was an investment. "It was a toy, a consumption decision, an ego decision," he says.

A month after filing the airplane suit, Pippen followed up with a suit accusing Lunn of rampant misconduct in connection with his investments. Among the allegations are that Lunn failed to invest Pippen's money prudently, failed to document investments or value them properly in monthly statements, and converted millions of dollars of Pippen's for his own use.

Today Lunn admits that some of Pippen's investments were unsuccessful. "But that's the business," he says. "You're going to miss a few." And he admits that some were "speculative." But, he adds, "you've got to have some risk to make money. I believed in everything we invested in, and on balance I think I was correct." Finally, he calls allegations that he pocketed any of Pippen's money for his own use "an outrage-it's so far off the beam it's beyond belief."

In the months that followed his filing suit, Pippen ratcheted up the pressure on Lunn, going through several sets of legal teams in the process. In October of last year Pippen won a $7.6-million judgment on the guarantee Lunn had issued. Lunn now regrets not contesting the judgment, because it gave Pippen the ability to sweep money out of Lunn's bank accounts, effectively shutting down what was left of his business (he had already sold the asset management side to Mesirow Financial in January 2003). In December, Lunn was stung by the appearance of a story in the Sun-Times portraying Pippen as the victim of a Wall Street hustler and disclosing that Lunn had made false claims about his academic credentials.

Meanwhile, despite Pippen's assertions that Lunn had put him into a host of bad investments, it turned out that the two commercial real-estate properties, at least, really were valuable. At a public foreclosure auction this past January, a California company called Primestor, which had previously attempted to buy the land from Lunn, emerged with the winning bid of $62.4 million, enough for Lunn to pay off the $40-million mortgage with $22 million left over to distribute to Pippen and his other creditors. But when Pippen's lawyers persuaded a state court judge to intervene in the sale-alleging that Lunn had colluded with Primestor to sell the property far below its market value-one of Lunn's other creditors filed a motion to move the case to federal bankruptcy court, where it subsequently played out. The bankruptcy court rejected Pippen's later attempt to claim that he, not Lunn, owned the properties, and the sale to Primestor was finally approved in June.

After legal fees are subtracted, Lunn's bankruptcy estate is likely to have about $20 million, his lawyers say. At press time, Lunn was still working with his creditors to devise a plan for the equitable distribution of the money. Given that the creditors' claims are likely to total more than $30 million, Pippen could wind up with substantially less than what Lunn had previously offered, and Pippen rejected, to avoid bankruptcy: a settlement valued at more than $10 million-$7.6 million in cash plus the assumption of his obligation on the Gulfstream II. As often happens when two parties go for the jugular in litigation, the real winners may turn out to be the lawyers.

Today Lunn says he feels vindicated that the commercial properties turned out to be as valuable as he had believed, and that he'll be able to substantially pay off his debts. But, he says, "the personal price I paid was too high." Humbled by the bankruptcy process, he says he spent every cent he had-more than $2 million-on legal fees trying to fend off Pippen and his other creditors. Meanwhile, Lunn's days as a financial guru are over. "Lunn Partners is done," he says. "It's not coming back." For one thing, "it would be difficult to resurrect the same kind of close relationships I had," he says, because from now on there will "always be an element of doubt. I'm always going to have to explain what happened."

Today, many of the high-powered investors who once clamored for inclusion in Lunn's deals, golfed with him, socialized with him, won't take his calls. "You really find out who your friends are," Lunn says. "When we were humming for all those years, everybody was trying to get to me. And when I was at my low point, many of those people you couldn't find. Some of them wouldn't have what they have today if it wasn't for Lunn Partners."

Lunn shouldn't hold his breath waiting to be welcomed back into the fold. "He is now a pariah, persona non grata," says the source familiar with several Lunn Partners deals. "He lost a ton of money for people, and I don't think he ever truthfully told where all the money went. Then came the legal trouble. People feel let down-especially if the résumé fraud is true. It's embarrassing to people who knew him well."

In Lunn's eyes, the villain of this tale is Scottie Pippen, who started a pointless legal battle that accomplished nothing more than delaying by more than a year the day when Lunn could pay him what he owed. But by some accounts, Lunn's wounds were self-inflicted, his flaws fatal enough to have made this reckoning inevitable. "I think his ego front-ran him, and he got to the point where he thought he couldn't make a mistake," says the former Lehman Brothers colleague. "Instead of buying General Electric and Monsanto and Procter & Gamble and building a [conventional] portfolio, he was always swinging for the fences, doing these weirdo private deals." Had Lunn stuck to stocks and bonds, "there wouldn't have been any lawsuit."

On that point even Lunn agrees. "In hindsight, I wish I would have put Scottie in an index fund, because I couldn't be criticized for that," he says. "But he wasn't paying for that. He was paying for something that was different and unique."

Today Lunn is starting over with little but his health and his family. Over the past two years, he says, he has gotten a Ph.D., figuratively speaking, in commercial real-estate development, and in the future he hopes to do more of it along with private equity investing. He now has the opportunity to take a 30-percent stake in Primestor Chicago, which owns the two commercial properties, provided he can fund that share of the debt when he emerges from bankruptcy. "I will survive in the real-estate business and just go back to living off my wits again," he says.

But even now, Lunn can't help thinking that "none of this had to be. What bothers me the most, in retrospect, is that if Scottie and I would have managed to get along, which was prevented by the airplane suit, we'd be playing golf somewhere today," Lunn says, as if that heartwarming tableau were almost close enough to touch. "And I'd be saying, ‘Look at how badly you would have done if you had stayed in the stock market-versus where you are now.'" It's a lovely thought-Lunn and Pippen together again, teammates again, friends again. Just like old times.