Make us your home page
Instagram

Lehman Bros. used accounting trickery to hide problems, examiner says

NEW YORK — A court-appointed examiner investigating the failure of Lehman Bros. has accused the investment bank of using accounting trickery to hide its troubled finances, blaming senior executives and auditor Ernst & Young for major lapses that led to the firm's collapse and helped trigger a global financial meltdown.

The 2,200-page report, unsealed late Thursday, says executives manipulated Leh­man's balance sheet, using a "materially misleading" accounting trick to temporarily remove $50 billion of troubled assets.

The report says Richard Fuld, then chief executive of Lehman, was "at least grossly negligent" and that accounting firm Ernst & Young could be accused of professional malpractice.

"Unbeknownst to the investing public, rating agencies, government regulators and Leh­man's board of directors, Lehman reverse-engineered the firm's net leverage ratio for public consumption," says the report by the examiner, Anton Valukas, a former federal prosecutor.

Lehman's bankruptcy filing in September 2008, the largest in U.S. history, helped spread fear throughout the global financial system and prompted the federal government to step in with a multibillion-dollar rescue package.

The report identifies various causes of the 158-year-old firm's failure, including demands for collateral by rival investment banks such as JPMorgan Chase that squeezed Lehman to bankruptcy.

But the report focuses on an accounting method used by Lehman — known as "Repo 105" within the firm — to reverse-engineer results. According to the report, the move made the firm's use of leverage, or borrowed money, appear less than it actually was by temporarily hiding troubled assets, and it deceived shareholders about Lehman's ability to withstand losses.

The report says Fuld instructed executives to reduce the bank's debt levels and that executives turned to "Repo 105" to comply. Fuld told the examiner that he did not recall use of the accounting device but that he would have been concerned about it had he known, the report says.

Senior executives at Lehman and Ernst & Young were aware that the accounting device was used, the report says.

"Ernst & Young took no steps to question or challenge the nondisclosure by Lehman of its use of $50 billion of temporary, off-balance sheet transactions," it says.

In a statement, Ernst & Young said Lehman's failure was the result of "unprecedented adverse events in the financial markets."

Lehman Bros. used accounting trickery to hide problems, examiner says 03/12/10 [Last modified: Friday, March 12, 2010 9:19pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Legalized medical marijuana signed into law by Rick Scott

    State Roundup

    TALLAHASSEE — Gov. Rick Scott on Friday signed into law a broader medical marijuana system for the state, following through on a promise he made earlier this month.

    Gov. Rick Scott signed legislation on Friday that legalizes medical marijuana in Florida.
  2. Line of moms welcome Once Upon A Child to Carrollwood

    Business

    CARROLLWOOD — Strollers of all shapes and sizes are lined up in front of the store, and inside, there are racks of children's clothing in every color of the rainbow.

    At Once Upon A Child, you often as many baby strollers outside as you find baby furniture and accessories. It recently opened this location in Carrollwood. Photo by Danielle Hauser
  3. Pastries N Chaat brings North India cuisine to North Tampa

    Business

    TAMPA — Pastries N Chaat, a new restaurant offering Indian street food, opened this week near the University of South Florida.

    The menu at Pastries N Chaat includes a large variety of Biriyani, an entree owners say is beloved by millions. Photo courtesy of Pastries N Chaat.
  4. 'Garbage juice' seen as threat to drinking water in Florida Panhandle county

    Water

    To Waste Management, the nation's largest handler of garbage, the liquid that winds up at the bottom of a landfill is called "leachate," and it can safely be disposed of in a well that's 4,200 feet deep.

    Three samples that were displayed by Jackson County NAACP President Ronstance Pittman at a public meeting on Waste Management's deep well injection proposal. The sample on the left is full of leachate from the Jackson County landfill, the stuff that would be injected into the well. The sample on the right shows leachate after it's been treated at a wastewater treatment plant. The one in the middle is tap water.
  5. Honda denies covering up dangers of Takata air bags

    Autos

    With just a third of the defective Takata air bag inflators replaced nationwide, the corporate blame game of who will take responsibility — and pay — for the issue has shifted into another gear.

    Honda is denying covering up dangers of Takata air bags. | [Scott McIntyre, New York Times]