How Lehman Hid Its Woes

by Dual Income No Kids on March 14, 2010 · 4 comments

I wanted to share a bit about the recent release of the “coroner’s report” on the demise of Lehman Brothers. A friend of mine actually helped with the 2,200 page summary of the downfall, and I thought you might be interested in the highlights from the New York Times article, “Report Details How Lehman Hid Its Woes

According to the report, Lehman used what amounted to financial engineering to temporarily shuffle $50 billion of assets off its books in the months before its collapse in September 2008 to conceal its dependence on leverage, or borrowed money. Senior Lehman executives, as well as the bank’s accountants at Ernst & Young, were aware of the moves, according to Mr. Valukas, the chairman of the law firm Jenner & Block and a former federal prosecutor, who filed the report in connection with Lehman’s bankruptcy case.

“Unbeknownst to the investing public, rating agencies, government regulators, and Lehman’s board of directors, Lehman reverse engineered the firm’s net leverage ratio for public consumption,” Mr. Valukas wrote.

Its pretty crazy that behemoths like Lehman can get away with such behalf and walk away from it without criminal prosecution. You’d think that striping millions of their livelihoods would constitute criminal behavior.

Your thoughts?

Miel

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{ 4 comments… read them below or add one }

1 Mike Licht March 14, 2010 at 11:57 am

Lehman's U.S. law firm would not okay the "Repo 105" scheme, so it got a go-ahead from British lawyers.

2 Anonymous March 14, 2010 at 12:28 pm

My thoughts: 100% fraud. No question about it.

3 MoneyEnergy March 15, 2010 at 2:55 am

It's completely disgusting. I know other companies engage in all kinds of criminal behavior (the ag business in relation to "livestock" is a great example), so I shouldn't be surprised.

But this is just such an obvious, outright lie. I'm sure they found a way to rationalize it to themselves (thinking they were using a loophole), but it's a lie all the same.

4 The Personal Finance Blog March 16, 2010 at 2:44 am

It's properly scandalous. They literally got away with murder. I don't want to open a can of worms, but it does seem that corporations are held to a totally different set of standards than individuals. I don't mean to look like I condone people walking away from their mortgages, because I don't. Yet it's amazing to see how easily people accept corporations doing the same. Recently in NY, investors bailed out on a $5.4 billion loan because the complex it financed was only worth $1.8 billion. It made headlines, sure, but no one questioned the "morality" of it…

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