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. Trump shuts down CEO advisory councils as main group acts to disband

    Business

    President Donald Trump's main council of top corporate leaders disbanded on Wednesday following the president's controversial remarks in which he equated white nationalist hate groups with the protesters opposing them. Soon after, the president announced on Twitter that he would end his executive councils, "rather than …

    President Donald Trump meets with Merck's chief executive, Kenneth Frazier, second from left, and other leaders of the pharmaceutical industry in the Roosevelt Room of the White House last January. On Wednesday, Trump's main council of top corporate leaders disbanded following the president's controversial remarks in which he equated white nationalist hate groups with the protesters opposing them.
[New York Times file photo]
  2. A long-awaited vision for Tampa's Westshore Marina District

    Real Estate

    TAMPA —Eleven years after plans to develop a waterfront tract on the Tampa side of the Gandy Bridge were first announced, a new rendering gives a hint of what Westshore Marina District ultimately will look like.

    Rendering of Marina Pointe, a condo project overlooking Tampa Bay as part of the Westshore Marina District. [Courtesy of Masterfile Corp.}
  3. Buddy Brew Coffee to open downtown Tampa location

    Business

    TAMPA — Buddy Brew Coffee plans to open a new location in downtown Tampa at Park Tower in early 2018. The specialty coffee craft roaster, which was founded in 2010, has five other locations throughout Tampa including the Oxford Exchange, Sarasota, Hyde Park Village and Terminal F inside the Tampa International …

    A cappuccino is displayed at Buddy Brew in Tampa in January 2017. [CHARLIE KAIJO | Times]
  4. Where to pig out for National Bacon Lovers Day

    Food & Dining

    That's right: Sunday is the national day devoted to all things bacon, National Bacon Lovers Day. Which, really, isn't too different from the other 364 days of the year. But here's a little roundup of some special places to celebrate everyone's favorite meat snack (seriously, even vegans have a grudging respect …

    A creme-filled doughnut topped with maple frosting and bacon at Dough on MacDill Avenue in Tampa.
  5. The Penny Hoarder tops 79 fastest growing Tampa Bay companies on Inc. 5000

    Business

    ST. PETERSBURG — The Penny Hoarder on Wednesday further cemented its reputation as one of the country's fastest growing companies. The personal finance web site business ranks 25th nationwide and tops in the Tampa Bay market for growth on the 2017 Inc. 5000 list of fastest growing businesses.

    Vishal Mahtani (left), vice president of business development, Alexis Grant (center), executive editor, and Kyle Taylor, CEO and founder of The Penny Hoarder, celebrate the news with their staff  Wednesday of making the new Inc. 5000 ranking of fastest growing companies in the country. They enjoyed champagne during a catered lunch at their office in downtown St. Petersburg after ranking 25th nationwide and tops in the Tampa Bay market for growth on the just released 2017 Inc. 5000. [DIRK SHADD   |   Times ]