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New Lehman Brothers Evidence Shocks Even Experts
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(March 31, 2010 - Wednesday) - "Examiners in bankruptcy cases are appointed by the Justice Department to investigate accusations of wrongdoing or misconduct. Their job is to determine whether creditors can recover more money in these cases, and their findings often serve as guides for more lawsuits and even regulatory action."
Some lawyers are calling the 2,200 page report make public by Valukas a road map for further inquiry into former Lehman executives and the auditing firm Ernst & Young.
It is unclear whether the Securities and Exchange Commission (SEC) will pursue their own legal action, but it is clear that the examiner has provided plenty of material for civil regulatory action.
The demise of the of Lehman Brothers was the largest bankruptcy in American history and the new report paints a much better picture of exactly what happened.
According to the New York Times article one of the highlights of the report is the discovery of an aggressive accounting measure known as Repo 105.
Valukas claim that Repo 105 was aimed at helping the bank hide the depth of its financial problems.
According to the report the accounting tactic used repos to temporarily park assets off the books to make end-of-quarter debt levels look better than they actually were.
The tactic was first used by Lehman in 2001, but according to Valukas no American law firm would sign off on its use.
Lehman finally found the answer they were looking for in London. The British firm, Linklaters, would sign off on the tactic as long as the repos were conducted through Lehman’s European arm and the bank took cosmetic steps to ensure that the transactions appeared to be sales rather than financings.
"Lehman also had the backing of Ernst & Young, which certified the bank’s financial statements despite receiving warnings from a whistle-blower who said there were accounting improprieties."
A spokesperson for Ernst & Young said that the company stood behind the work that they preformed for the bank in 2007, the last year they conducted an audit of Lehman’s financial records.
Former chief accountant for the SEC, Lynn Turner said, “This is pretty aggressive and pretty abusive. I don’t know how under GAAP this follows the rules whatsoever.” Adding that he believed the SEC and Justice Department should follow up on the findings in Valukas’s report.
Executives at other Wall Street banks were surprised by the findings. Goldman Sachs, Barclays, and other Wall Street giants said that they did not use repos to hide their liabilities.
If you have lost your investment due to the sneaky tactics employed by a broker or investment bank, the investment fraud lawyers at the Hayes Law Firm can help.
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