Senator Spencer Bacchus, the top Republican on the House Financial Services Committee is quite right to write to Lehman bankruptcy examiner Anton J. Valukas and ask to review communications between the Federal Reserve and the Securities and Exchange Commission about Lehman Brothers Holdings Inc, in preparation for an April 20 hearing into the Valukas report. He wants to know what exactly the SEC found out while it was inside Lehman -- or more importantly what it missed.
In his letter to Valukas. Bacchus wrote that Lehman "used accounting gimmicks to hide its debt and mask its insolvency...More disturbing, the examiner's report also describes what appear to be significant failings on the part of officials" at the SEC and the Federal Reserve Bank of New York.
The SEC and FED, after all, were inside Lehman Brothers for the last six months of its life. How did they miss all this?
Sen. Chris Dodd, the Senate banking chair has asked former Lehman chief Dick Fuld to return to testify exactly how Lehman misled so many people. (Fuld's lawyer has said Fuld had never heard of Repo 105, the accounting tool by which Lehman moved $50 billion of its balance sheets...)
Perhaps some explanation may lie in an email I received today from one of Lehman's most senior employees -- someone who worked there for 17 years. He wrote to me off the record so I am not at liberty to disclose his identity, but he was very senior and widely respected.
He is not the only Lehmanite to have responded to my new book, The Devil's Casino (Wiley). Many have thanked me for exposing a culture led (and ruined) by a tiny leadership that was egregious, isolated and mendacious. Without exception, Lehman readers have told me I got it absolutely right -- and -- in particular they have agreed with today's New York Post's article which noted that the book maintains that Lehman's president Joe Gregory was actually the chief villain at the firm, responsible for much of the over-risky leverage, and not so much Dick Fuld. (Incidentally all the e-mailers and callers have agreed that their wives loathed being "married to Lehman" as the book points out in one chapter.)
What my e-mailer of today however points out is something that both Rep. Bacchus and Sen. Dodd may find useful as they follow up on Valukas's report.
He wrote, "like many former colleagues, I'm astonished at how much we didn't know about the workings of the inner circle."
Note the last three words. "The Inner Circle." This was not the whole Lehman's executive committee. This was Fuld, Gregory, perhaps in reverse order, and then Gregory's pet of the month, at one point Erin Callan, at another Mark Walsh. But it was a tiny unit, cut off from the rest of Lehman.
He follows up.
So, here we have Lehman:
"An inner circle" at the top cut off from the rest. It fires people for telling the truth, and fails to promote the most competent executive until too late.... This culture didn't spring up in its last few months...it festered for years. Whatever the SEC and FED missed in the bank's final six months, the cabal at the top was already set in its ways and adept at hiding what it was really doing from not just the SEC, Fed and market -- but its own senior management. That really is a horrifying culture, and one I am delighted to have exposed.
Vicky Ward is the author of The Devil's Casino: Friendship, Betrayal and the High-Stakes Games Played Inside Lehman Brothers
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