Did Lehman Bros. Lie to Investors?

by Eric Umansky, ProPublica

We¹ve written before -- some what skeptically -- about the FBI's apparent investigations into Lehman Brothers, AIG and other once-high-flying firms. Well, it turns out the Feds might just be onto something with Lehman Bros.

According to the Wall Street Journal, in the run-up to its collapse, Lehman Bros "went to great lengths to conceal how fast it was careening toward the financial precipice." (Unfortunately, the story is behind a pay-wall.)

Lehman's chief executive, Richard Fuld Jr., will be testifying this morning at a congressional hearing, and there's no shortage of potentially juicy lines of inquiry.

In the weeks leading up to Lehman declaring bankruptcy, the firm's execs repeatedly assured investors that the company was in fine shape. "Our balance sheet is better than ever," an exec in Lehman's European division, Christian Lawless, recalls telling clients. (Yes, that is his real last name.)

On Sept. 10, Lehman hosted a conference call for investors. The night before, top execs had discussed the need to raise $3 billion to $5 billion. But on the call, says the Journal, "Lehman executives didn't say anything about needing to raise capital." Lehman's chief financial officer asserted on call, "Our capital position at the moment is strong."

Of course, it's understandable that Lehman's brass was trying to shore up confidence in the company. "It's a dance all these executives do when your company is built on trust and you can't show weakness," Peter Henning, a former SEC lawyer and DOJ prosecutor, told the Journal. At the same time, Henning said, similar statements were used by criminal prosecutors against top execs at Enron.

Boosterism is one thing. Fudging the books is another. According to the Journal, two Wall Street execs "who reviewed Lehman real-estate documents" concluded that the "firm's real-estate valuations are roughly 35 percent higher than they should be."

A "document reviewed by the Journal," Lehman had valued some of its real estate investments at near 98 cents on the dollar, even though the firm listed similar U.S. assets as being worth near half of that. As the Journal notes, "While the European market for such securities has been slightly better than the U.S. market, it has also been hammered by the credit crisis."

In his prepared statement (PDF) for the hearing today, former Lehman CEO Fuld blamed a "litany of destabilizing factors" for the firm's downfall. "In the end, despite all our efforts, we were overwhelmed." We might just be getting a better picture of exactly what those factors were.

Cross-posted at ProPublica, America's largest investigative newsroom.

Eric Umansky is a senior writer for ProPublica.

Comments

[WIpatriot]

"Did Lehman Bros. Lie to Investors?"

Does a bear deficate in the woods?

[Mishymalkin]

The worse thing I heard today was that Lehmann went out of their way to pay executive bonuses this year while the company was going under.

What formula pays a bonus when the company is going belly up?

And Congress just gave Paulson, a Wall Street shill, $700 billion to bail guys like this out.

Totally disgraceful.

[schatsie]

heck we hear about the bonuses, but then there are the salaries, paid expenses, and pensions, etc... These people have lived better than the monarchy and have been tax dodgers who have bought off the current administration.... I mean really parties that cost millions of dollars, but a written off as expenses, heaven knows they don't want to pay taxes on that and besides why should they???

MORE TRANSPARENCY!!! That REAL ESTATE bubble was a direct result of GREENSPANs holding the interest rates down......any realistic cash flow evaluations would have demonstrated that these prices were unrealistic..and the banks allowed the borrowers to be able to walk away and then the banks are SHOCKED really Shocked that the borrowers walk away....I am ready to walk away myself, if Trump can do it, why not me...

[dadw5boys]

THE CEO OF COUNTRY WIDE WHO BAILED OUT WITH MILLIONS IS AN OLD FRIEND OF G.W. BUSH.

OLD CHURCH GOING BUDDIES !!!!!

[dolphy]

DUH!

[dadw5boys]

CHECK THOSE LOANS CLOSELY !!!!!!

COUNTRY WIDE IS THE MOST LIKELY CRIMINAL THAT WROTE THE LOANS.

COUNTRY WIDE CEO BAILED WHIT MILLIONS BEFORE RICO ACT GOT HIM.

[rwe2late]

Lehman's also apparently peddled fraudulent investment securites abroad.


Lehman burns HK's low-risk investors
http://www.atimes.com/atimes/China_Business/JJ07Cb01.html

[MsIKnowBetter]

I know they more than lied, they committed outright fraud to investors. Congress should pursue criminal charges against these guys, and a civil suit to force them to relinquish all assets here and abroad.

If the bonuses of the past 6 years were added up by all of these guys, I would bet the debt would be paid down substantially.