Lehman did nothing wrong?
An allegedly leaked copy of an SEC internal memo was sent to Reuters along with a copy of a letter addressed to Scott Garrett (R-NJ05), chairman of the House Financial Services Committee. The author of the letter remained anonymous.
Reuters and Bloomberg have disclosed that the memo contained this excerpt:
Activity in Last Four Weeks
The staff has concluded its investigation and determined that charges will likely not be recommended.
The anonymous letter claims that SEC Chairman
Mary Schapiro made statements about the Lehman investigation in a recent House Financial Services hearing that were inaccurate. The author of the letter recommends that these statements, made under oath, should be investigated by the SEC Inspector General and the House Financial Services Committee.
An SEC spokesman did not deny the authenticity of the internal memo sent to the media but claims that Ms. Schapiro's testimony to Congress was accurate and the the Lehman case is still under review and that no final decision has been made.
In her testimony to and answers to questions by the HFSC in late April on
"SEC Oversight", Ms. Schapiro refused to comment on the Lehman matter because of the ongoing investigation but did indicate that the investigation was still active.
Just a month before the hearing, 60 minutes had done a segment bringing up the whole subject of Lehman again and questioning why there had been no charges filed even after an independent examiner produced a very extensive (2,200 pages) and very expensive ($38 million) report. (More on that 60 Minutes segment below). She told the Committee that she and her team had a meeting with the independent examiner and "discussed his findings for several hours". She then seemed to be setting things up for no charges being filed against anyone from Lehman when she said this: "the illegality of conduct is sometimes not quite as clear-cut as it seems to be or as reported to be, and it makes bringing cases extremely difficult."
Reuters story:
SEC unlikely to file charges in Lehman case-memo
* Memo mailed to Reuters says Lehman probe is concluded
* Says charges "will likely not be recommended"
* SEC says Lehman matter is still under review
* Anonymous letter accuses Schapiro of lying to Congress
* Schapiro told Congress Lehman matter is still active
WASHINGTON, May 24 (Reuters) - The staff of the U.S. Securities and Exchange Commission has concluded its investigation into Lehman Brothers Holdings and will not likely recommend charges, according to the excerpt of a memo sent to Reuters.
The excerpt, which was not dated, was sent along with an anonymous letter to Congress alleging that SEC Chairman Mary Schapiro made inaccurate statements about the agency's Lehman probe during a hearing last month.
Bloomberg story:
SEC Staff Ends Probe Of Lehman Without Finding Fraud
U.S. Securities and Exchange Commission investigators have concluded their probe of possible financial fraud at Lehman Brothers Holdings Inc. without recommending enforcement action against the firm or its former executives, according to an excerpt of an internal agency memo.
Lawmakers and investors have pressed the agency for more than three years to determine whether Lehman misrepresented its financial health before filing the biggest bankruptcy in U.S. history in September 2008.
Under a heading reading “Activity in Last Four Weeks,” the undated document reads, “The staff has concluded its investigation and determined that charges will likely not be recommended.”
SEC officials didn’t dispute the authenticity of the memo or its contents.
Is it true that the investigation has been closed or not? The statement from their spokesman could be just a parsing of words about the fact that no decision has been announced:
"As the Chairman said, it's still under review and no final decision has been made"
Schapiro's own statements to the HFSC committee certainly sounded like she was preparing them for this exact outcome.
"the illegality of conduct is sometimes not quite as clear-cut as it seems to be or as reported to be, and it makes bringing cases extremely difficult."
The Valukas Report
In 2009, the U.S. Bankruptcy Court in Manhattan appointed Anton Valukas as the Examiner in the Lehman Brothers Holdings bankruptcy case. Valukas, now the chairman of Jenner & Block, is a former U.S. Attorney who has also taught at the John Marshall School of Law and and Northwestern University School of Law.
In March, 2010, the independent examiner and his team released a seven volume, 2200 page report. The full text of the report is available here on the Jenner & Block web site.
C-SPAN footage of Valukas
Of course, many colossal bankruptcies involve bad accounting. But a new report on the Lehman collapse, released last week and described in an article in Friday’s Times, would leave anyone dumbstruck by the firm’s audacity — and reminded of the crying need for adult supervision of Wall Street, The New York Times’s editorial board argued on Sunday.
[ ... ]
The maneuvers, which Mr. Valukas said were “materially misleading,” made the firm appear healthier than it was. He wrote that Richard S. Fuld Jr., Lehman’s former chief executive, was “at least grossly negligent,” and that Lehman executives engaged in “actionable balance sheet manipulation.”
At the time, one Lehman executive sent e-mail to a colleague describing the accounting ploys as “basically window dressing.”
Window dressing? Shortly before Lehman’s failure, $50 billion in assets were shed from its balance sheet.
http://dealbook.nytimes.com/...
The 60 Minutes Segment
Just last month, CBS 60 Minutes interviewed Valukas and reviewed the Lehman case.
60 Minutes Revisits Lehman, Valukas, and Repo 105
That court-appointed bankruptcy examiner’sinvestigation into the collapse of Lehman Brothers found a number of colorable claims (prosecutable) against Lehman executives, including CEO Dick Fuld. The Repo 105 scam was designed to mislead investors about the state of Lehman’s balance sheet, making it look healthier than it really was.
But two years later, nothing has come of the Valukas evidence. The SEC hasn’t brought charges, and neither has the Department of Justice.
Steve Kroft of 60 Minutes, who had an excellent report a few months ago on the lack of accountability for financial crisis fraud, does us another service by getting Anton Valukas on camera for the first time.
Valukas is clearly baffled that charges haven’t been filed:
[ From transcript: ]
Anton Valukas: It certainly, in our opinion, was against civil law if you will. There were colorable claims that this was a fraud, yes…
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.
Reactions
Considering the gravity of this situation, there has not been a lot of reporting about it yet. The story first broke yesterday and there have been some more stories today. I find that to be very odd especially since the SEC did not deny that this was indeed a copy of one of their internal memos.
Here are some of the reactions that I have found:
David Dayen:
The Securities and Exchange Commission has ended their probe of Lehman Brothers without making any enforcement actions. It’s only the latest in a series of investigations that have either turned up empty or resulted in what amounts to a slap on the wrist.
Ben Hallman:
It's the latest disappointment for those waiting for prosecutors to single out the individuals and institutions that created, marketed and rated the financial products that nearly brought down the American economy.
Arthur Wilmarth
"If, in fact, the SEC decides not to pursue even a civil money penalty action against any of the senior Lehman officers, that decision will be consistent with a highly regrettable pattern that we've seen ever since the financial crisis exploded in 2008," said Arthur Wilmarth, a banking law professor at The George Washington University.
Written in February, 2010, but apparently still true.
Lehman Justice Isn’t Blind, It’s Unconscious: Jonathan Weil
It is so widely accepted that Lehman Brothers Holdings Inc.’s balance sheet was bogus that even former Treasury Secretary Hank Paulson can say it in his new memoir. And still, the government hasn’t found anyone who did anything wrong at the failed investment bank.
How could that be, 17 months after Lehman collapsed and sent the global credit crisis into overdrive? While Congress and the White House dither about reforming the U.S. financial system, the wheels of justice are grinding so slowly, if at all, that it seems there’s no appetite in Washington for holding Wall Street executives accountable for anything.
They say that Lehman's off the hook
"Ha ha! We didn't cook the books"
The Wall Street banksters raised a cheer
SEC: "Nothing to see here!"
At Lehman we were pure as the driven snow
Pay no attention to the pesky memo
Hop in the car and head for your yacht
It's Memorial Day and t'will none of us be caught
Oh thank you, thank you, SEC
For letting all the perps go free
So more will do as Lehman did
I'll bet you a dollar, or a quid