Economic News, Federal Reserve & Bankers
After more than three years of investigating the largest corporate bankruptcy in U.S. history, the Securities and Exchange Commission is reportedly dropping the case against Lehman Brothers.
“The staff has concluded its investigation and determined that charges will likely not be recommended,” reads an internal SEC memo, obtained by Bloomberg.
Gee, go figure. Former bankers investigating bankers. When I was a child, we called this a merry-go-round.
If true, this is ‘a travesty of a mockery of a sham of a mockery of a travesty of two mockeries of a sham,’ to quote Woody Allen’s Bananas.
In 2010, the court appointed examiner for Lehman’s bankruptcy concluded Lehman executives used “materially misleading” accounting gimmicks in the months prior to its September 2008 bankruptcy.
Specifically, Lehman “reverse engineered the firm’s net leverage ratio for public consumption” to the tune of $50 billion, according to Valukas. This refers to the now infamous accounting practice called a Repo 105, whereby Lehman offloaded some of its most toxic assets at the end of the quarter in order to temporarily reduced the leverage it disclosed in quarterly filings.
U.S. Securities and Exchange Commission investigators have concluded their probe of possible financial fraud at Lehman Brothers Holdings Inc. without recommending enforcement action against the firm or its former executives, according to an excerpt of an internal agency memo.
Lawmakers and investors have pressed the agency for more than three years to determine whether Lehman misrepresented its financial health before filing the biggest bankruptcy in U.S. history in September 2008.
Under a heading reading “Activity in Last Four Weeks,” the undated document reads, “The staff has concluded its investigation and determined that charges will likely not be recommended.”
SEC officials didn’t dispute the authenticity of the memo or its contents.
Pressure on the agency to punish any wrongdoing related to Lehman’s collapse escalated after Anton Valukas, the court- appointed bankruptcy examiner, found the firm misled investors with “accounting gimmicks” that disguised its leverage.
Senior SEC officials have been reluctant to formally close the matter even though investigators found a lack of evidence of wrongdoing, according to people with direct knowledge of the matter. The officials have weighed issuing a public report on their findings that would stop short of an enforcement action while highlighting the firm’s questionable conduct.
SEC Chairman Mary Schapiro said the case was still “under investigation and analysis” when she testified at a congressional hearing last month.
“Our staff has conducted an independent and extremely extensive investigation of all these issues,” Schapiro said in the April 25 hearing before the House Financial Services Committee. “They have searched through millions of pages of documents. We have taken testimony of all the key people including members of Lehman senior management, outside accountants.”
John Nester, an SEC spokesman, said the case remains under review.
“As the chairman said, it’s still under review and no final decision has been made,” Nester said in an e-mail.
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