Lehman uses gimmicks to conceal real financial situation

The U.S. investment bank Lehman Brothers has used accounting gimmicks to conceal its bad investments that led to its bankruptcy, according to a report made public on Thursday.

The court-appointed examiner Anton R. Valukas compiled the 2,200-page report after one year of investigation into the collapse of Lehman Brothers.

Valukas found that Lehman died from multiple causes, including mortgage holdings and demands by rivals like JPMorgan Chase and Citigroup.

Lehman chose to "disregard or overrule the firm's risk controls on a regular basis," even as the credit and real estate markets were showing signs of strain, the report said.

According to the report, Lehman shuffled 50 billion U.S. dollars of troubled assets off its accounts before its collapse in September 2008. The move helped Lehman look like it had less debt on its books.

But senior Lehman executives and the bank's accountants at Ernst & Young were aware of the moves, according to Valukas. "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," Valukas wrote in the report.

A large portion of the report centers on the accounting maneuvers, known as "Repo 105," whcih was first used in 2001.

The report stated that Richard S. Fuld Jr., Lehman’s former chief executive, was "at least grossly negligent," and Henry M. Paulson Jr., the then Treasury Secretary, warned Fuld that Lehman might fail unless it stabilized its finances or found a buyer.

Though Valukas drew no conclusions as to whether Lehman executives violated securities laws, he suggested that enough evidence exists for potential civil claims.

Source:Xinhua