FORTUNE -- Ever since Lehman Brothers imploded and filed for the largest bankruptcy in history nearly two years ago, the firm's former chairman and CEO, Dick Fuld, has been a little on edge.
For instance, last September, when Clare Baldwin, an enterprising freelance reporter for Reuters, rang the front gate at his property near Sun Valley, Idaho, to get an interview -- still the only one he has granted since Lehman's demise -- the first words out of Fuld's mouth when he saw her were, "You don't have a gun. That's good."
Then there was the instance a few weeks after the bankruptcy filing, in October 2008, when Lehman managing director Kevin White arranged a visit with Fuld in his 31st-floor office in Midtown Manhattan. That was where Fuld had hunkered down during Lehman's final calamitous week and where he had presided over "Club 31," the group of loyalists surrounding him on the executive floor.
White, the head of several structured-finance and mortgage businesses at the firm, had never met Fuld. He was not part of Fuld's inner circle, or Club 31. But with the dust starting to settle and Fuld soon moving to smaller digs across the street, White wanted to meet him. By then White, 47, had decided not to join Barclays, which had bought the bulk of Lehman's U.S. banking business a few days after Lehman filed for bankruptcy. He elected instead to start over with his own firm, Spring Hill Capital Partners, and try to rebuild the fortune he'd lost after some 17 years at Lehman. For some reason, though, he had the urge to go see Fuld, a man who was then a pariah, and arranged to get on his calendar.
When White walked into Fuld's office, the former Lehman CEO was sitting at his desk. Fuld looked up, according to White, and they exchanged greetings. White asked Fuld how he was doing. "Not too well," Fuld said. "I can't believe this happened. I failed you. I failed your family. I failed the shareholders. I don't think I'll ever recover from this."
White told him he shouldn't ever recover from it. "It's a scar for both of us," he said. "It'll heal for me. But it will never heal for you. You're going to take this one to your grave," he said matter-of-factly. Fuld looked up at White. "You're not going to shoot me, are you?"
White told him he was there for one reason -- to thank him. He'd come to New York as a kid, not knowing anyone on Wall Street, White said, and Lehman had given him his shot. Over the years he'd built his career there, White told Fuld, and he'd come to believe in the firm, its culture, and its business. "Yeah, I lost more money than I'll ever make in my life," White told Fuld. But, as White put it, the integrity, values, market knowledge, and relationships that he had amassed at the firm were more important, and those he would take with him. "I thank you because I believed in a lot of the things that were your core values in the discipline of this company," White said.
Fuld then told White he was leaving Lehman. White asked whether he would be joining Barclays. "Fuck that," Fuld said. "I'm not going to Barclays. Fuck that." White said he wouldn't be going to Barclays either, and told Fuld about Spring Hill. Fuld offered to help White any way he could. Then it was time for White to leave. Fuld stood up and came around to the other side of his desk to shake White's hand. He put his hand out, then pulled it back. "Nah, fuck that," he said. "Give me a hug. I need a hug." Before White knew it, Fuld, the man whose gruff, brutish manner had given him the nickname "the Gorilla," was embracing him. Then, White said, Fuld started crying. "Kevin, you're the first person to say thank-you to me."
And White may be the last to thank Fuld -- except for the lawyers and restructuring experts, who have been paid more than $900 million in fees since the bankruptcy filing. For those lucky firms, the profits amassed in the past 23 months are staggering: Alvarez & Marsal, the advisory firm handling the restructuring and the acting management team, has received $326 million; Weil Gotshal, the lead bankruptcy attorneys, has netted $212 million.
Since Lehman imploded, Fuld has -- understandably -- kept a very low profile. He resigned as CEO of Lehman Brothers Holdings, the publicly traded company that is still in bankruptcy, in November 2008, but remained both an adviser to Bryan Marsal, the new CEO, and chairman of the board of directors until May 2009. However, his role was hardly what it had been, and he was rarely seen around Lehman offices for most of that time.
So as the two-year anniversary of Lehman's demise approaches, what, exactly, has Fuld been doing? Thanks to his aggressive (and, some of his supporters say, overprotective) attorney, Patricia Hynes at Allen & Overy, he has hardly been seen or heard from since the bankruptcy filing, except for several tortured and highly lampooned appearances in front of congressional committees. True to form, Hynes told Fortune in an e-mail that Fuld would be unavailable for this article; Fuld did not respond to messages left for him at his New York office or at his home in Sun Valley. But according to many accounts, he is working hard at moving on from the events of September 2008 by devoting himself -- with his customary zeal -- to building his tiny advisory investment-banking boutique. He has also been spotted traveling to and from his usual haunts in Sun Valley and Jupiter Island, Fla., on commercial flights for the first time in years. (Curiously, he shows up on the FAA website as having gotten his student pilot's certificate in November 2008, so he might be working on a strategy to avoid commercial air travel.) He has also been getting ready to fight what could be a lifetime of litigation against him. Enforcement agencies ranging from the SEC to the Department of Justice, which has convened three grand juries, have been investigating Fuld and other former Lehman executives for possible wrongdoing.
From Lehman to Matrix
In April 2009 -- after being essentially unemployed for four months -- Fuld established Matrix Advisors in an office at 780 Third Ave. in Manhattan to provide advice to corporations on raising capital and on mergers and acquisitions. Matrix's operations have been unclear, but a little-noticed May regulatory filing sheds some light. Fuld is the "managing member/owner" of Matrix, and according to the filing he spends roughly 250 hours a month at the firm, or more than 60 hours a week. The filing describes Matrix as "executive strategic consulting" that provides "strategic advice to client management teams and senior employees ... across all aspects of business." It is said to be a small operation -- "a young guy from Lehman and two secretaries," says a source close to Fuld. Old Lehman hands who still speak to Fuld regularly -- and their number is dwindling as life moves on -- say they don't know what kind of business Fuld is doing at Matrix. "He calls sometimes at 7 a.m.," one told Fortune. "He calls at 7 p.m. He's working. I don't know how successful he is. I have no way of knowing that. But he's working. He's busy."
Fuld is said to remain close to Sam Palmisano, the chairman and CEO of IBM (IBM, Fortune 500); Fuld's son Richie and Palmisano's son were roommates at Middlebury College, where Fuld was a member of the board of trustees until last year. He is also said to be close to Jeffrey Immelt, the chairman and CEO of GE (GE, Fortune 500). One friend of Fuld's heard he had done work for IBM recently; an IBM spokesperson confirmed to Fortune that Fuld and Palmisano are friends and that Fuld has done advisory work with the company's acquisitions team. Another source who spoke to Fuld recently told Fortune he is also working with a large European software company. Friends are not surprised he's getting business, given his Rolodex and his aggressive style. Says one: "He knows how to ask for the order."
Matrix popped up in the headlines this past May when various news outlets reported that Fuld had left Matrix to join Legend Securities, a tiny, relatively unknown broker-dealer near Wall Street. In truth, Fuld hadn't left Matrix, but he had registered with Legend, possibly as a way to keep his securities licenses valid. A source familiar with the arrangement told Fortune that the relationship came about because Fuld knew one of the Legend executives. "He said, 'Yeah, I don't care,'" the source said. "'What the hell? If it helps you out, fine. I don't care about the backlash.' Because it was a lot of backlash."
Paying for the collapse
If all this seems like a lot of effort for a 64-year-old man who spent a career making a killing on Wall Street, it is. Many in Fuld's circle believe that he would not be working so hard if he did not need the money to pay for his luxurious lifestyle and ongoing legal bills related to Lehman's collapse. As evidence, they point to his decision to sell his extensively renovated 6,000-square-foot Manhattan apartment at 640 Park Ave. in August 2009 -- to Glenn Fuhrman, the co-founder of Michael Dell's MSD Capital -- for $25.87 million, some $4 million more than he paid for it in 2007. (Fuld commutes to the Matrix offices from his Greenwich home.) Fuld's friends also point to the Fulds' decision two months after the Lehman bankruptcy filing to sell 16 rare drawings from wife Kathleen's modern art collection at auction for a guaranteed $20 million. Fuld is also said to have reneged on a $50 million pledge to Middlebury College. Shortly after Lehman fell, according to a source close to the school's president, Ronald Liebowitz, Fuld told Liebowitz that he was worth only $100 million and would not be able to honor the commitment. Liebowitz did not reply to a request for comment, but a Middlebury official told Fortune that Fuld "did not renege on a formal pledge as far as I know," but said it was possible that Fuld might have changed his mind about an "informal" pledge, and that in any event he was "a great trustee and very generous."
Despite the $45 million in proceeds from the asset sales, the Fulds still own plenty of real estate. There is the sublime Idaho compound where Reuters' Baldwin showed up, a collection of buildings around a main house that sits on the Big Wood River, assessed at $5.8 million. Fuld also owns another cabin an hour north of Ketchum, on Pettit Lake. All told, Fuld owns 15 parcels of land in and around Sun Valley totaling 76 acres, assessed at nearly $23.28 million, according to the Blaine County, Idaho, assessor's office. And Fuld still owns the mansion in Greenwich -- nine bedrooms plus a guest house on nearly 12 acres --- for which he paid $7.3 million in 1992 and which could easily fetch multiples of that today. The Fulds also own a five-bedroom home on 3.3 acres on exclusive Jupiter Island, Fla., for which they paid $13.75 million in 2004 and reportedly tore down and rebuilt. Taxes on the home have been around $200,000 a year. (In November 2008, Fuld transferred his ownership of the home to Kathy for $100. He subsequently said he transferred the property to her after she sold a portion of her art collection to "rebalance" the assets between them. "Very plain," he told Congress. "Very simple.")
What is he really worth?
Fuld's actual net worth, though, remains a bit of a mystery -- and a controversial one. In 2007, he was paid $34 million, $29 million of which was in now worthless Lehman stock. He also owned, directly or indirectly, another 10.85 million Lehman shares that were once worth close to $1 billion but were also rendered nearly worthless. (Some 2.1 million of those shares were pledged as collateral in a Lehman Brothers margin account.) On the day of the bankruptcy filing, Fuld sold nearly 3 million shares at around 20¢ each, receiving some $600,000 for them. He then sold another 287,000 shares at 7¢.
When it comes to what Fuld has reaped from stock sales over the past decade, it's a far cloudier picture. In public Fuld has tried to minimize what he cadged from Lehman. During his appearance at a congressional hearing in October 2008, just weeks after Lehman's collapse, Fuld sparred with Rep. Henry Waxman, who released a chart showing that Fuld had made $484 million from 2000 to 2007. Under oath, Fuld denied he had made that amount and said he had received closer to $310 million during those years. Later in the hearing he conceded it might have been closer to $350 million.
But the truth about Fuld's take seems to be much larger, and suggests that not only did Fuld receive compensation in excess of what Waxman suggested but that he also took out in cash more than $500 million.
In June 2008, before Lehman's demise but as its troubles were clearly mounting, Fortune calculated that Fuld had sold $482 million worth of his Lehman stock between 2000 and 2007. Other efforts to disprove Fuld's claims have since surfaced. Last year a team of researchers at Harvard Law School released a study that found that, between 2000 and 2007, Fuld cashed in Lehman shares worth $461 million and received cash bonuses of $61.6 million.
Oliver Budde, a former Lehman associate general counsel who was responsible for drafting parts of Lehman's SEC filings until he quit in February 2006, alleges that Fuld was paid $529.4 million during that time and had cashed out $469 million through stock sales -- figures he sent in a two-page whistleblower e-mail to the SEC in April 2008 and shared with Bloomberg BusinessWeek this April. Patricia Hynes, Fuld's attorney, said in response to Bloomberg BusinessWeek that "after being vetted by legal counsel, [Budde's claims] were determined to be without merit." Budde stands by his numbers. "I have no doubt I have it right," he says. "Anyone can do the math."
Budde agrees with other former Lehman executives who think that despite the hundreds of millions of dollars in cash Fuld pulled out, he may indeed be caught in a financial squeeze. He points to the margin calls Fuld probably received on his Lehman stock as its value fell through 2008, and the fact that he and Joe Gregory, Lehman's former president, converted their illiquid holdings in Lehman's private equity funds into millions in cash during the summer of 2008. Budde also suspects Fuld may eventually exhaust the company's insurance money being used to pay his legal costs and will then have to foot the legal bills himself, even before any possible judgments against him are rendered. Indeed, the legal bills are mounting: On July 27, Weil Gotshal filed a motion to tap additional insurance policies for the Lehman directors' and officers' legal bills, which the firm said would reach $55 million by October.
Fuld has certainly had to relearn how to live more frugally. Since Lehman's fleet of three private jets (two Gulfstream IVs and a Dassault Falcon 50) plus a Sikorsky helicopter are no longer at his disposal -- all have been sold -- he has been seen on commercial flights to and from Sun Valley and Jupiter Island. "His feet had never touched the ground on a commercial flight in 20 years," said a corporate executive who saw him on one of those flights.
Fuld's side of the story
Lehman people still in touch with Fuld say he has been through both the denial and the mea culpa stages and is now in what one person referred to as the "combative stage." People close to him say he thinks he got a bad rap from those who suggested he wasn't able to find a buyer for Lehman in the summer of 2008, after Bear Stearns was sold to J.P. Morgan Chase (JPM, Fortune 500). His defenders say Fuld would very much like to tell his side of what happened, but Hynes won't allow it. Another former Lehman executive thinks Fuld is misunderstood. "Dick is a very good person," he says. "He is a very good human being. I have watched him grow. The portrayals of him are so different than the way he is."
In addition to the time spent at Matrix, Fuld has been forced repeatedly to defend and explain his management of Lehman in its final years. That was made especially difficult after the release in March of the explosive report by court-appointed bankruptcy examiner Anton R. Valukas. Nearly 18 months in the making, at a cost of $30 million to the Lehman estate and numbering 2,200 pages, Valukas's report was remarkable both for its comprehensiveness and for the damning allegations it made against Fuld and other former Lehman executives. The most serious: that Lehman executives moved $50 billion in assets off the company's balance sheet through the now infamous Repo 105 device. Fuld, as is well known today, testified he had no knowledge of the maneuver, but Valukas said that he had witnesses who said they discussed the transactions with Fuld -- and that there are documents that prove it.
The Valukas report will probably serve as a litigation road map for the pack of lawyers readying cases against Fuld and Lehman. Indeed, in his testimony Valukas said that as he was writing his report, he kept the entities investigating Lehman -- including the SEC and the three U.S. attorneys investigating the case (in New Jersey as well as in both the Southern and Eastern districts of New York) -- fully apprised of his findings.
Fuld has also been kept busy by the sea of litigation spawned by the bankruptcy. According to the regulatory filing he made in May as part of the Legend deal, Fuld is involved in close to 20 pending lawsuits, including a class action filed in the Southern District of New York by Lehman's former debt and equity holders, which alleges that Lehman and its executives raised $31 billion in capital by circulating documents that contained "untrue statements and omitted material facts" about Lehman's financial condition. There is also the ongoing litigation between Lehman Brothers Holdings, the bankrupt estate, and Barclays PLC alleging that Barclays snookered Lehman when it purchased the company's U.S. investment-banking and securities business in the days after the bankruptcy filing. The estate is seeking billions in compensation, which would be used to pay creditors. Although his name has been invoked, Fuld has not yet been called to testify in the case.
Indeed, there is little question that Fuld's life for the foreseeable future will include hours of testimony explaining why he did what he did during the final years of Lehman Brothers. Meantime he is working hard at Matrix, using his connections as best he can, and trying to rebuild his life and his name. Asked whether Fuld seems happy, a close friend paused and then said, "Mixed." In other words, the Gorilla might need another hug.
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