09/12/2013 10:12 am ET Updated Sep 16, 2013

Ex-Lehman Employees Cashing In From 'Recovery' That Left Most Workers Behind


NEW YORK -- Five years after the fourth-largest U.S. investment bank collapsed, sparking a panic that many believed would bring down the world financial system, many of the executives who tried to paper over the bank’s mounting losses are reaping the benefits of the Wall Street comeback.

The Huffington Post charted the career paths of 63 former Lehman Brothers employees named in an independent bankruptcy examiner's report as having knowledge of an accounting maneuver that allowed Lehman to disguise the true extent of its deteriorating finances, likely postponing the reckoning.

A stunning 47 of these bankers still hold senior positions in the financial services industry, including Michael McGarvey, an executive and senior member of Lehman's finance group who described the accounting move in internal emails as "basically window-dressing" based on "legal technicalities." Within Lehman, this group was responsible for most aggressively pushing the dodgy accounting move, known as Repo 105, according to emails published with the 2,200-page examiner's report.

The former Lehman bankers are participating in a recovery that has flooded Wall Street with cash again, even as wages for average workers have stagnated. The big banks that survived on massive taxpayer bailouts and an unceasing flow of cheap government loans are larger than ever before and making huge profits. The stock market is booming, notching record highs.

Wall Street paid out nearly $122,000 in bonuses per banker last year, up 9 percent from the year before -- an amount equal to nearly one and a half times the median household income in the United States. Another big bonus bump of up to 20 percent is expected in 2013.

There's far less to cheer about on Main Street: The median worker now earns about $5,000 less than she did in 1999, adjusted for inflation, according to Economic Policy Institute data. The unemployment rate is falling, but mostly because people are giving up. In July, the share of people who have stopped looking for work rose to the highest point since 1978.

McGarvey, who declined to comment, is still at Lehman Brothers, after a fashion. He's now a senior vice president at the entity that replaced the bank after it filed for bankruptcy on Sept. 15, 2008. He and seven others from the Repo 105 crew are helping to unwind massively complicated trades and sell off Lehman's assets for the bank's estate, a task that is expected to take several more years to complete.

They are well-paid: an average of $383,000 in salary in bonuses in 2009, the last year for which data is available. That's more than the average Lehman employee earned at the bank itself pre-crash, according to the firm's earnings reports.

A spokeswoman for Lehman's estate declined to comment.

Others once involved in Repo 105 are scattered across the financial services industry: at Barclays, the British bank that purchased Lehman’s investment business out of bankruptcy; at Nomura, the Japanese bank that bought Lehman's international operations; and at more than two dozen other banks and investment companies.

Not all Wall Street workers have profited from the rebound. Banks culled thousands of support staff in the wake of the Lehman disaster, and many of these people have struggled to find work.

One of them, Stacey Kobell, is finally working again, but only after more than three years without a steady job. She had an up front and personal view of the financial crisis: For six years, until November 2008, she worked as an executive assistant at Lehman Brothers.

In 2010, following a miserable year paying bills with unemployment checks and what she could earn selling her belongings on eBay, Kobell had a panic attack in her New York City apartment. She immediately packed up and moved to Tampa, Fla., to live with her mother.

Kobell now lives in Orlando, working for a property management company. She is grateful to have a job, she said, even though she earns $20,000 less than she did five years ago. But she still can’t come to terms with what happened. "I'm angry because these idiots let the company get destroyed," Kobell said of her former employers. "What the hell were they thinking?"

The record shows they were thinking of profits, and not much at all of risk. In the years leading up to its collapse, Lehman bankers earned enormous salaries and bonuses by converting home mortgages into financial instruments that investors could buy and trade. The bank accumulated a huge inventory of these mortgage bonds. When the housing market began to falter in 2007, Lehman ramped up its use of Repo 105.

Just before the end of each quarter, when Lehman would report to the public details about its financial health, the bank would temporarily sell as much as $50 billion in assets it didn't want showing up in those disclosures. Then, after the close of the quarter, it would buy them all back, paying a little bit more than the selling price. This made the bank look less indebted than it actually was.

Whether or not the maneuver was legal remains unresolved. The independent bankruptcy examiner called it "balance sheet manipulation," but the U.S. government ended an investigation into Repo 105 without bringing any charges.

The degree of involvement of other Lehman employees in the scheme varied. Some, like Kaushik Amin, the former head of liquid markets in Lehman’s fixed-income division, drove subordinates to use Repo 105 to shift increasingly massive sums off the firm's balance sheets.

Amin, who earned $12.5 million at Lehman in 2007, joined UBS as a senior executive after the collapse but left the Swiss bank in 2012. It's not clear where he is now.

Jerry Rizzieri, who reported to Amin, urged the sales team to “push capacity higher.” In one November 2008 email, he mused about the state of Lehman's financial reporting had the bank not used the accounting maneuver: "Can you imagine what this would be like without 105?"

Rizzieri is currently the head of fixed income at Mizuho Securities USA, a subsidiary of the large Japanese bank.

Paolo Tonucci, Lehman's former treasurer, and John Feraca, who ran the desk responsible for executing Repo 105 transactions, hold senior positions at Barclays.

Lehman's former chief financial controller, Martin Kelly, is now CFO at Apollo Global Management, which oversees $113 billion in assets. Kelly told the Lehman bankruptcy examiner that there was "no substance" in the Repo 105 transactions, according to the examiner's report.

One former employee is now a regulator: Irina Veksler, a former vice president in Lehman's treasury department, is a senior bank examiner at the Federal Reserve.

Not everyone has had a successful post-Lehman life. HuffPost was unable to track down 11 former employees named in the report. A few of them retired; one died. Former CEO Dick Fuld fled to his Florida mansion.

None of these former employees responded to requests for comment.

Matthew Lee, a former senior vice president, is currently unemployed. In May 2008, four months before the bankruptcy filing, Lee wrote a letter to top management in which he characterized Repo 105 as deceitful and dangerous.

Lee was also the first to tell investigators working for Anton Valukas, a former U.S. Attorney who led the exhaustive review of Lehman's collapse, about the accounting move. In his lengthy report, Valukas indicated he had found sufficient evidence for the U.S. government to sue top Lehman officers, including Fuld and three former chief financial officers, for fraud.

Last year, however, the Securities and Exchange Commission dropped its Lehman probe without bringing charges. The New York Times reported this week that internal divisions over whether the Repo 105 scheme was legal or not ultimately scuttled the investigation.

It was a risky move for an employee in Lee’s position to challenge management. But he felt morally compelled, he wrote, to sound the alarm.

“These are, indeed, turbulent times in the economic world and demand, more than ever, our adherence and respect of the [code of ethics] so that the firm may continue to enjoy the investing public’s trust and confidence in us,” Lee concluded.

He was fired a few weeks later.



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