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Vicky Ward on Lehman: If We Want Answers, Prosecutors Need to Get Going

Apr. 15, 2010 11:46 PM ETLehman Bros Hld (LEHMQ)3 Comments
Edward Harrison profile picture
Edward Harrison

Vicky Ward, author of "The Devil’s Casino: Friendship, Betrayal, and the High Stakes Games Played Inside Lehman Brothers," told Bloomberg that prosecutors need to get going if we are going to get any answers regarding why Lehman Brothers (OTC:LEHMQ) collapsed in a heap in the largest bankruptcy in US history and revealing a massive $150 billion hole in its balance sheet.

But eighteen months after Lehman was declared insolvent no criminal charges have been filed as far as I am aware. Ward joins a growing chorus of people asking why the government is dragging its feet on Lehman. For example, Jim Chanos has also asked where the perp walks are.

I would be stunned if there weren’t at least indictments at Lehman and some of the other large institutions that have failed. I don’t know why there haven’t been any yet, but it’s amazing that it’s taken them this long.

At issue is the accounting subterfuge dubbed Repo 105 in which Lehman Brothers sold dodgy assets in the repo market to reduce leverage at a reporting period’s end only to re-acquire those assets after the next reporting period had begun. The effect these sales had was to mask the true financial condition of the firm (see A quick video primer on Repo 105). Is this a violation of Sarbanes-Oxley? That is certainly one avenue prosecutors need to investigate.

Ward notes that Lehman’s accountants Ernst & Young have said all of the major firms played these kind of accounting games and that Lehman wasn’t unusual in this respect. But does that make this legal?

Stay tuned.

This article was written by

Edward Harrison profile picture
Edward Harrison is a banking and finance specialist at the economic consultancy Global Macro Advisors focusing on global economics and corporate strategy. Previously, he was a partner at the consultancy Lion Strategy Advisors, and worked in various consulting, strategy and M&A roles at Deutsche Bank, Bain Consulting, the Corporate Executive Board and Yahoo. Mr. Harrison started his career as a diplomat in the foreign service. He speaks German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. He holds an MBA from Columbia Business School and completed his undergraduate studies with a degree in economics from Dartmouth College.

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Comments (3)

Leftfield profile picture
Clearly getting away with any and everything, with perp walks and RICO consigned to the memory hole, says that our leadership has absolutely no fear of the American voter. This has developed over decades of increased malfeasance and debacles, yet Washington only loosens regulation and subsidizes failure on Wall St. while adding burdens to the productive and to Main St.

The Washington/Wall St. criminal enterprise knows that to impoverish Main St. as it enriches itself is it's surest path to immunizing itself and securing it's loot and it's illigitimate ascendancy, permanently.
ebworthen profile picture
Moral Hazard.

And they wonder why the individual investor hasn't jumped back into the market.

Bernie Madoff was the third grader in the town with crooked cops, bankers, politicians, and pimps gaming the populace.

And...they think they will keep getting away with it and that there has never been a lynching or beheading or gutting of the malfeasant in the public square by the Butcher, the Baker, and the Candle Stick maker (aided by the street sweeper, the teacher, and the homemaker).
D_Virginia profile picture
Yeah, where ARE the perp walks? I mean, seriously?

Don't get me wrong, I fully expect the weaselly lawyers to get the weaselly executives off the hook in the end, but I'd like to at least see these bastards be slightly inconvenienced for all their wrongdoings.

There's certainly a very credible case for some charges related to negligence at best, and more likely fraud. If it's a "gray area" from one side, it's gray from the other side too. Let a jury decide.

And what is this "everybody does it" crap? While that may be true, it has precisely zero bearing on the legality of it -- or certainly the morality, but Wall Street was never into morals to begin with.

The government's dealings with Wall Street are all carrots -- "if you don't act like a criminal mastermind, we'll give you more money ".

Where the hell are the sticks? How about "if you actually do right by the taxpayers and shareholders for a change, we won't lock you up for the rest of your life?"

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