Former Turquoise CEO Eli Lederman's compensation claim for unfair dismissal is expected to be resolved next month, pending an employment tribunal's view of the acquisition of a majority stake in the multilateral trading facility (MTF) by the London Stock Exchange (LSE) in 2010.
The LSE agreed to take a 60% stake in Turquoise on 21 December 2009, at which point the MTF commanded a 2.99% share of pan-European equity trading. The LSE committed to take on £20 million (US$31.95 million) of costs relating to technology, restructuring and integration, and fund the venture for a two-year period. In the previous financial year, to 31 December 2008, Turquoise had lost £15.7 million (US$25 million) before tax. The LSE now owns a 51% stake in Turquoise, which will operate the exchange's derivatives platform from May, having sold 3% stakes to Barclays Bank, J.P. Morgan Cazenove and Nomura in March 2010.
Prior to the transaction, the LSE had begun to roll out its own non-displayed pan-European MTF, Baikal. The trading facility was initially unveiled as a joint venture between Lehman Brothers and the LSE, but was delayed following the collapse of the broker in 2008. Repositioned as dark pool and liquidity aggregation service, Baikal's smart order router was launched in June 2009. Its order book – scheduled to go live in November that year – was never made fully operational because of the opportunity to take a majority stake in Turquoise.
The LSE has conceded unfair dismissal, but the tribunal, which began on 17 March, must also decide the level of compensation warranted, which turns on whether the takeover of Turquoise falls under Transfer of Undertakings (Protection of Employment) Regulations (TUPE), which protect employees’ terms and conditions of employment when a business is transferred from one owner to another.
Under TUPE, employees of a business become employees of a new employer on the same terms and conditions when a business changes hands. The LSE says that Turquoise continued to exist in its own right once it assumed majority ownership and therefore Lederman's dismissal at the time of the transfer was not covered by TUPE. If the rule does apply, he could be liable for a greater amount of compensation, depending on the tribunal's ruling.
“[The LSE] proclaims that the merger of Turquoise and Baikal was not a merger, while from the second the deal was struck, it so clearly was,” Lederman said.
The deal completed on 18 February 2010, at which point it was announced that Eli Lederman, CEO of Turquoise, and John Wilson, CEO of Baikal, were to leave and that David Lester, then director of information services at the LSE, would become CEO of the Turquoise and Baikal businesses.
According to the exchange, when Turquoise was majority acquired it was placed into a new entity, Baikal Global Holdings Limited (BGHL), created by the LSE for this purpose in December 2009. BGHL was also the holding company for Baikal, which at the time of the takeover had revenues of approximately £500 a year, and no trading activity. Lester was appointed a director of BGHL, the board and shareholders of which served in the same capacity for Turquoise and Baikal.
The ownership structure that had been agreed for Turquoise, with a majority stake acquired by the LSE from a consortium of banks, was transferred to BGHL.
Lederman has asserted that his intention is not just to win compensation for himself. “It is incredibly important to take a principled stand on this legal matter, related as it is to the employment of my staff at Turquoise, so few of whom remain now just 13 months after the deal. This case is about them,” he said.
Lederman insists Baikal and Turquoise were not distinct operations and that resources were quickly combined. “Employees drifted between the two organisations immediately on completion of the deal,” he said. “Senior roles in Turquoise were taken by LSE and Baikal executives, and teams within Turquoise were staffed with Baikal employees.”
Of the senior management team at Turquoise, chief operating officer Adrian Farnham and chief financial officer Anthony Ball were both retained after the deal. Ball left in September 2010 to join Spanish banking firm Santander. The Baikal staff that took senior positions at Turquoise included commercial director Natan Tiefenbrun and head of technology Mark Ryland. At least 20 Turquoise staff left the business at the time or just after the transfer to the LSE.
Sources close to the situation have confirmed that employees at Turquoise believed the deal to be a merger at the time.
Lederman anticipates taking on a new role soon, having been unemployed since leaving Turquoise. Further litigation is expected to deal specifically with the terms under which he was dismissed.
The employment tribunal received summations from the two sides on 28 March and is now deliberating with a decision pending in the next month.