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UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who covered Washington during all or part of ten of America's presidencies and who has edited alternative journals since 1964. The Review, which has been on the web since 1995, is now published from Freeport, Maine. We get over 5 million article visits a year. See prorev.com for full contents of our site

March 12, 2010

THE DIRTY STORY BEHIND LEHMAN'S COLLAPSE

GUARDIAN, UK - A court-appointed US bankruptcy examiner has concluded that there are grounds for legal claims against top Lehman Brothers bosses and auditor Ernst & Young for signing off misleading accounting statements in the run-up to the collapse of the Wall Street bank in 2008 which sparked the worst financial crisis since the Great Depression.

A judge unsealed a 2,200-page forensic report by expert Anton Valukis into Lehman's collapse which includes scathing criticism of accounting "gimmicks" used by the failing bank to buy itself time. These included a contentious technique known as "repo 105" which temporarily boosted the bank's balance sheet by as much as $50bn.

The exhaustive account reveals that Barclays, which bought Lehman's US businesses out of bankruptcy, got certain equipment and assets it was not entitled to. And it reveals that during Lehman's final few hours, chief executive Dick Fuld tried to get Gordon Brown involved to overrule Britain's Financial Services Authority when it refused to fast-track a rescue by Barclays.

With Wall Street shaken by the demise of Bear Stearns in March 2008, Valukis said confidence in Lehman eroded: "To buy itself more time, to maintain that critical confidence, Lehman painted a misleading picture of its financial condition.". . .

A senior Lehman vice-president, Matthew Lee, tried to blow the whistle by alerting top management and Ernst & Young. But the auditing firm "took virtually no action to investigate". . .

In a "brainstorming" session, Fuld suggested getting the president's brother, Jeb Bush, who was a Lehman adviser, to get the White House to lean on Downing Street.

Barclays eventually bought the remnants of Lehman's Wall Street operation from receivership for $1.75bn - a sum that has enraged certain bankruptcy creditors who believe it was a windfall for the British bank.


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