NEW YORK — A Lehman Bros. whistle-blower warned his bosses that accounting gimmicks the bank used before its collapse may have been illegal, his lawyer said Friday.
Matthew Lee, 56, a former Lehman senior vice president, was fired days after questioning the accounting tricks in a letter to his superiors, said attorney Erwin Shustak, who gave a copy of the letter to the Associated Press.
Lehman Bros. Holdings imploded in September 2008, becoming the biggest corporate bankruptcy in U.S. history. The collapse sent financial markets across the globe into a free-fall and prompted a massive bailout of the U.S. banking system.
Anton Valukas, an examiner appointed by the bankruptcy court, said in a 2,200-page report last week that Lehman hid its debt and perilous financial condition by using an accounting gimmick called Repo 105. The report revealed Lee's warnings to the bank, though his letter makes public the first internal assessment of the legality of Lehman's bookkeeping.
In a letter dated May 18, 2008, Lee, a 14-year Lehman veteran, wrote that he discovered the bank had been underreporting its debt by about $5 billion at the end of each month.
"I believe the manner in which the firm is reporting these assets is potentially misleading to the public and various governmental agencies," Lee wrote.
Days after sending the letter, the firm told Lee he was being terminated as part of a general layoff, Shustak said. After his firing, Shustak wrote a letter to the bank saying that Lee "believes he has been the victim of retaliation for bringing what he believed, in good faith, to have been ethical and securities law violations by Lehman."
The bankruptcy examiner's report and Lee's letter could provide a framework for any future legal action against Lehman executives.
Valukas' report doesn't conclude whether executives violated securities laws. It does say executives' decision not to disclose the effects of its business judgments appears to be sufficient evidence to support the awarding of civil damages in a trial.