Monday, March 22, 2010

Lehman's Enablers

"A bankruptcy examiner's report about the accounting practices at Lehman Brothers Holdings Inc [LBHI] is filled with legally charged language, calling the bank's financial statements 'materially misleading' and saying its executives engaged in 'actionable balance sheet manipulation.' ... But legal experts say hurdles remain to criminal prosecutions that, while potentially surmountable, also could be significant. ... The examiner wrote there was 'sufficient evidence' to support a legal claim that Mr. [Richard] Fuld was 'at least grossly negligent for failing to ensure' Lehman filed proper financial statements about its accounting for the transaction, and that a key former executive of the firm, the chief operating officer, personally briefed him on the matter. ... But legal experts say the report can and likely will be used as a roadmap for the Justice Department and other agenceis considering charges or lawsuits. Representatives for the [SEC] and US attorney's offices in Manhattan and Brooklyn declined to comment. ... Another hurdle: Lehman had the blessing of its outside auditor, [E&Y], which had reviewed its quarterly earnings reports in 2008 and was briefed on concerns about Repo 105 accounting, the report said. ... [E&Y] has said the accounting for the repo transactions complied with generally accepted accounting principles", Amir Efrati & Ashby Jones at the WSJ, 13 March 2010, link:

Blessing? Big 87654 firm? So? Didn't they bless backdated stock options? Didn't E&Y sanction the ".001" standard? Who cares what E&Y thinks? E&Y should be indicted for securities fraud along with anyone at LBHI who sanctioned the Repo 105 accounting. Disagreeing with the "legal experts", I think drafting indictments and securing convictions should be easy here. Just "flip" the supposed "advice of counsel" defense to "you secured professional advice to make it appear you wanted it as opposed to creating an after the fact rationalization". Then let the jury decide.

Tyler Durden had an interesting 14 March 2010 post on E&Y's Lehman adventure at Phil's Stock World, link:

1 comment:

Anonymous said...

All the blokes that participate in these "soft frauds" think there is no cost to their rule-skirting... even when things blow up... they just tidy up their desk and move on to the next assignment...

But there is an enormous cost and longterm damage done to the people and our economy... it's the erosion in peoples willingness to follow the rules... social cohesion...

Although all this stuff is very complex everyday people know that we are being had... and in turn may start taking advantage of others too.. predation... the head is rotten...