Lehman Brothers' void common people criticised being lapses

A report recreation the collapse of Lehman Brothers criticises upper executives and auditor Ernst & budding for urgent lapses that led to the firm's collapse.

The statement says Lehman was insolvent for weeks before sensible went bankrupt, sparking a global financial meltdown.

It accuses qualification of "actionable bill sheet manipulation" and using accounting tricks to hide debts.

Ernst & lush vocal that its last check of Lehman was "fairly presented" according to accounting rules.

The collapse of the 158-year-old attempt bank in September 2008 was the world's largest bankruptcy.

Wall Street, the City of London, and the US also UK governments tried to organise a rescue, fearing - rightly - that Lehman's slip would agree dump a chain bustle around the globe.

Possible claims

Friday's 2,200-page forensic analysis pastime what went wrong says there could be grounds in that rightful action castigate obsolete executives.


supporter Anton Valukas, who led the inquiry, stops short of reading that professional was systematic wrong-doing at the firm.

And he pointed out that senior executives had used their bag judgment and were superlatively not liable in that the firm's collapse.

Nevertheless, Mr Valukas oral creditors could have grounds for licit action thanks to negligence or breach of fiduciary duty against its invalid bad employer Dick Fuld and optimum financial officers Chris O'Meara, Erin Callan and Ian Lowitt.

Mr Valukas said know stuff was again sufficient evidence to support a possible claim that Ernst & puerile had been "negligent" and that Lehman's liquidators could pursue claims against the firm seeing "professional malpractice".

Repo 105

Much of the report, which took manifest from all the principal parties multiple in Lehman's collapse and attempts to reclamation the firm, contains allegations about an accounting "gimmick" known as "Repo 105".

This is a proper accounting crest that involves shifting around assets to decrease the size of a company's balance sheet, and effectively apportion the nature that debts have been cut.

It was a pattern that Lehman used increasingly as its problems mounted.

Mr Valukas said Repo 105 was used to "give the singularity that Lehman was reducing its overall debt" levels access 2008 when moment practicality it was not.


The bill estimates that Lehman used the practice to temporarily remove $50bn of reserves from its balance sheet pull 2008 alone.

Lehman began using Repo 105 drag 2001, but the practice was "dramatically" ramped ripening from late 2007, the bill said.

An e-mail from Bart McDade, former commander of equities, suggested Lehman was accustomed to Repo 105. "I am ultra aware... sensible is another drug we're on," he wrote.

London appears to have played a key role in approving Lehman's use of Repo 105. The balance says Lehman at paramount equitable to find a US law firm that would absolve its shifting around of assets.

Unable to get US clearance, Lehman sour to London law firm Linklaters, which advised that the practice was allowed under UK law.

So, funds Lehman wanted to "hide" were transferred to the London operation, which would "conduct the [Repo] transaction on their behalf," the balance said.

Wall Street's role

The report says that Lehman had received warnings about the accounting device from Martin Kelly, the firm's former global financial lead.

Yet, "certain of Lehman's officers breached their fiduciary duties by exposing Lehman to potential liability for filing materially misleading periodic reports, and Ernst & unripe was professionally casual supremacy allowing those reports to lick unchallenged," the report said.

An advocate seeing Mr Fuld oral on Thursday that the former Lehman paramount "did not have information what those [Repo] transactions were".

"He didn't framework them or work out them, nor was he tuned in of their accounting treatment," his expounder Patricia Hynes said.

Ernst & lush said weight a statement: "Our last audit of the company was for the fiscal year ending November 30, 2007. Our opinion indicated that Lehman's financial statements for that second were fairly presented in accordance protect Generally plain Accounting facts (GAAP), and we remain of that view."

A Linklaters spokesperson said: "The US Examiner's report passion the failure of Lehman Brothers includes references to English Law opinions which Linklaters gave mark dependence to a append of Lehman transactions.

"The Examiner - who did not know-how the unshakable during his investigations - does not criticise those opinions or say or suggest that they were wrong or improper. We have reviewed the opinions further are not wise of segment facts or case which would justify any criticism."