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Lehman insolvent weeks before bankruptcy: examiner
A worker carries a box out of the U.S. investment bank Lehman Brothers offices in the Canary Wharf district of London in this September 15, 2008 file photo.
Credit: Reuters/Andrew Winning
NEW YORK |
NEW YORK (Reuters) - Lehman Brothers Holdings Inc (LEHMQ.PK) used accounting gimmicks and had been insolvent for weeks before it filed for bankruptcy in September 2008, a court-appointed examiner said, but he did not find extensive wrongdoing.
In a 2,200-page report made public on Thursday, examiner Anton Valukas, chairman of law firm Jenner & Block, reported the results of his more than year-long investigation into the firm's collapse, which worsened the global financial crisis.
The examiner said that while some of Lehman's management's decisions "can be questioned in retrospect" and the firm's valuation procedures for its assets "may have been wanting," those responsible for the firm had used their business judgment and were largely not liable for the firm's collapse.
He did not find that Lehman's directors had explicitly violated their fiduciary duty.
However, in the report the examiner also revealed explosive allegations about a gimmick, known as "Repo 105," that was used for the sole purpose of manipulating Lehman's books.
The examiner concluded that the gimmick, which dated back to 2001 and was used without telling investors or regulators, gave the appearance that Lehman was reducing its overall leverage levels in 2008 when in reality it was not, partially leading to its collapse.
He also said Lehman could have potential claims against JPMorgan Chase & Co (JPM.N) and Citibank (C.N) in connection with demands for collateral and certain changes made to guaranty agreements in Lehman's final days.
And Barclays Plc (BARC.L) may have received some assets improperly when it took control of Lehman's core U.S. brokerage, he said in the report.
The examiner said there was also sufficient evidence to support a possible claim that the firm's auditor Ernst & Young ERNY.UL had been "negligent."
Barclays and JPMorgan declined to comment and a Citi representative had no immediate comment. A spokesman for Ernst & Young did not comment, saying the firm had not yet had time to review the findings.
The report was completed in February and was allowed to be unsealed by the bankruptcy judge overseeing the case earlier on Thursday.
(Reporting by Emily Chasan, Phil Wahba, Dan Wilchins, Joe Rauch, Matthew Goldstein, Jeffrey Cane, Clare Baldwin, & Steve Eder; Editing by Gary Hill)
Snooze….I actually know a few people who lost fortunes in the whole Bear and Lehman crashes
The bosses were all drinking beer while its employees were moving cartons out of the Lehman’s Building across the street. Its Chairman reportedly collected $300m in a mere 10 years. Has he been charged yet?
Why is it that we are afraid to use the F-word in articles like this? FRAUD. If you or I swindled one or two people out of say, $5,000, we would go to jail, and well we should. So why is it that big banks swindle thousands of people out of billions of dollars, and we talk about “gimmicks?”
Fraud should be a crime. Period.
“….but he did not find extensive wrongdoing”??? If you commit adultery, then you committed adultery. It doesn’t have to be “extensive”.Maybe my brain is fried. Or is it Anton Alukas’?
Fraud by any other name is still fraud. This should be a high priority item.
If the fraudsters were quickly charged, convicted, and punished severely (very severely), it might actually invite reason and integrity into our nations banking system.
breezinthru, I agree these people must be prosecuted whether their crimes were “extensive” or not.
However, that’s not enough. By the time investigators catch up with them, they’ve passed their ill-gotten gains on to relatives, friends, cronies and others who “didn’t know” about the fraud (that is, their knowledge can’t be proved in court) and therefore the money can’t be “clawed back” and is gone forever.
Strong regulation is needed to prevent as much of the fraud as possible from ever happening.
