Lest anyone ever forget…
- Joshua M Brown
- August 22nd, 2012
60 Minutes dredged up the Lehman Brothers stuff this past weekend...
We're four years since the event and there are many in this country who still can't understand why not a single charge has been brought against anyone regarding the biggest bankruptcy in US history. Not every bankruptcy requires prosecution, of course, only the ones where fraud and deception are involved. Investigator Anton Valukas, whose job it was to figure out what had actually happened, was on the show. His team went spent 18 months interviewing witnesses and poring over 34 million documents. According to Valukas, there was a deliberate effort to deceive shareholders and regulators that involved sums of money so large and lies so blatant, it all remains unimaginable even to this day...
By colorable claims Valukus means there is sufficient evidence for the Justice Department or the Securities and Exchange Commission to bring charges against top Lehman executives, including CEO Richard Fuld, for overseeing and certifying misleading financial statements, and against Lehman's accountant, Ernst and Young, for failing to challenge Lehman's numbers.
Anton Valukas: They'd fudged the numbers. They would move what turned out to be approximately $50 billion of assets from the United States to the United Kingdom just before they printed their financial statements. And a week or so after the financial statements had been distributed to the public, the $50 billion would reappear here in the United States, back on the books in the United States.
Steve Kroft: And then the next financial statement, they would move it overseas again, and file the report, and then move it back?
Anton Valukas: Right.
Steve Kroft: It sounds like a shell game.
Anton Valukas: It was a shell game. It was a gimmick.
Lehman misused an accounting trick called Repo 105 to temporarily remove the $50 billion from its ledgers to make it look as though it was reducing its dependency on borrowed money and was drawing down its debt. Lehman never told investors or regulators about it.
Steve Kroft: This is really deception to make the company look healthier than it was?
Anton Valukas: Yes.
Steve Kroft: Deliberate?
Anton Valukas: Yes.
Steve Kroft: How are you so sure of that?
Anton Valukas: Because we read the emails in which we observed the people saying that they were doing it. We interviewed the witnesses who wrote those emails, or some of those emails, and asked them why they were doing it, and they told us they were doing it for purposes of affecting the numbers.
These people are still out there and their lifestyles haven't changed much if at all. They played the game with rules that no one else is allowed to employ - and while they didn't win, the consolation prize of getting off scot-free with millions in the bank ain't so bad.
They're laughing at you. Every day.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.