Probe of Lehman Collapse Escalated

Reuters

Federal investigators slapped the top Lehman Brothers staff who helped drive the company in the ground with a dozen subpoenas on Friday.

Prosecutors have stepped up the investigation into the collapse of Lehman Brothers, with at least a dozen subpoenas being issued including one to the investment bank’s chief executive, Richard Fuld, The New York Times reported on Saturday.Citing people close to the probe who requested anonymity, the Times said federal prosecutors in Brooklyn, Manhattan and New Jersey were examining events leading to Lehman’s collapse and bankruptcy filing.

One person said New Jersey prosecutors were looking into whether Lehman executives including Fuld misled investors involved in the $6 billion infusion of capital announced by Lehman in June about the bank’s condition, the Times said. That infusion came as Lehman disclosed a $2.8 billion third-quarter loss, which caused its shares to plunge.

The Times said the New Jersey Division of Investment, which put money into the capital raising, had been subpoenaed, and that the division’s director did not return a call seeking comment.

Brooklyn and Manhattan prosecutors meanwhile are looking into remarks made by Lehman executives during a September 10 conference call, which was five days before the company’s bankruptcy filing, the newspaper said, and are also investigating whether Lehman assigned proper values on its large commercial real estate holdings.

Update:  More information from the Cleveland Leader on the subpoenas being issued.

Barclays Bank, who bought Lehman’s North American brokerage, was also subpoenaed, as have Lehman’s accountants and the New Jersey Division of Investments, which runs a pension fund that lost $115.6 million on a $180 million investment in the June stock sale.

Update II:  The International Herald Tribune notes that lawyers have a case emerging from the chaos.

Miller said the failed investment bank hopes to be able to offer more details to creditors on the state of their cash and collateral within 45 to 60 days. Miller said the biggest obstacle that lies ahead is the unwinding of 1.5 million derivatives contracts, a task that will take a long time to complete.

Investment funds using the Harbinger name – which say they are owed more than $250 million – have asked to depose Lehman’s Chief Financial Officer Ian Lowitt and examine internal documents for details about any assets transferred in the month before Lehman filed for bankruptcy.

Partly at issue in Harbinger’s request is $8 billion that Lehman Brothers’ European business has said was wrongly kept by Lehman’s parent company, money the European arm felt should have been sent back the day of the filing.

Miller, Lehman’s lawyer, said it was not true that $8 billion had been transferred and that Lehman Brothers Europe actually owed more than $8 billion to the Lehman parent company. The Lehman parent company in turn owes the European unit a separate $2 billion to $3 billion, he said. Miller also said there was no evidence of anything out of the ordinary in any transfer of assets between the two.

For the rest of the Lehman Collapse – Reuters Link.  (H/T to House of Roberts for the updates)

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9 thoughts on “Probe of Lehman Collapse Escalated

  1. “…New Jersey prosecutors were looking into whether Lehman executives including Fuld misled investors involved in the $6 billion infusion of capital…”
    This was a bit confusing to me Freedomrebel, until I found another article that called it a stock sale. That made sense to me. These guys lied to people about the worth of this stock they sold, but I don’t think they were able to sell the entire $6 billion.

    But I did get this:
    http://www.clevelandleader.com/node/7358

    “Barclays Bank, who bought Lehman’s North American brokerage, was also subpoenaed, as have Lehman’s accountants and the New Jersey Division of Investments, which runs a pension fund that lost $115.6 million on a $180 million investment in the June stock sale.”
    So your New Jersey connection is at least partly this pension fund defrauded by the worthless stock sale.

    And here’s our old buddy the 4.4 billion pounds:
    http://www.iht.com/articles/ap/2008/10/16/business/NA-US-Lehman-Brothers-Bankruptcy.php

    “Partly at issue in Harbinger’s request is $8 billion (4.4 billion pounds) that Lehman Brothers’ European business has said was wrongly kept by Lehman’s parent company, money the European arm felt should have been sent back the day of the filing.
    Miller, Lehman’s lawyer, said it was not true that $8 billion had been transferred and that Lehman Brothers Europe actually owed more than $8 billion to the Lehman parent company. The Lehman parent company in turn owes the European unit a separate $2 billion to $3 billion, he said. Miller also said there was no evidence of anything out of the ordinary in any transfer of assets between the two.”
    I had to wait until the wee hours of the early to focus my attentions to this story, but I saw it earlier during my football game, then I got into the Cesspoll party.

  2. Good Morning House of Roberts :) I found this late last night and thought of you. You and I are the main ones following this story.

    I appreciate the updates that I will add to the post. I was too tired last night to go digging around. I thought you would appreciate the update. I was confused on part of it too.

    I was going to load up on caffeine in the morning and start checking other news outlets for more information. Thank you for saving me the trouble. If I haven’t told you lately, it’s always good to see you. Also, I appreciate the links.. :)

  3. I am following. I greatly appreciate the news. These crooks need to be tarred and feathered. And their money redistributed.

  4. If you put “Lehman Barclays 4.4 Billion” into Google, your article on September 23, “Fury At Pledged $2.5 Bn Bonus To Execs Of Lehman” comes up third on the list, out of 36,600. Either we got a lot of hits on that day, or NOBODY is paying much attention to this investigation yet. It was a good article regardless.

    I am interested in this New Jersey pension fund because that is what will make the media notice this, as few pensions as are left, and they are getting wiped out by stock fraud.

    “Lehman Brothers entered bankruptcy protection on Sept. 15 with assets of $639 billion and debt of $613 billion”
    Where did this much debt come from?

    This is pretty good if you can decipher Englishman’s English:
    http://www.nakedcapitalism.com/2008/10/how-lehman-blew-up-city-of-london.html

  5. Thanks House of Roberts :) I hadn’t seen that I was number #3. That is too cool…

    The problem the FBI is having with all this corruption on Wall Street is that George Bush won’t give them more money to hire the agents that went over to National Security matters.

    The FBI white collar crime division has 1/3 of the agents they had in 2000 or 2001. That is a disgrace that Bush has not given them the money that they have asked for repeatedly.

    The media has given the Lehman Brothers a backseat it seems to me, because of all the other Corporate Junkets they are still taking on our dime. Which I’m glad they are letting us know about, I’m not faulting them there.

    Part of the problem could also be that, tracing the trail of all these different transactions has not been easy. Some of them had to be good at hiding their trail or Ernest Young would have found it during their audit, unless of course they are complicit.

    But I’m still betting that Ernest Young is guilty also, just like Authur Andersen was. If they are, I hope they get nailed to the wall for not raising the red flag on Lehman.

    Another thing to note is where did all the assets go. Bloomberg had uncovered that Lehman’s assets shrank by over 80% from the-bankruptcy Sept. 15 claiming $639 billion in assets. How do you loss $400 billion in assets in a couple of months? Either someone took the money and ran or Ernest Young are the world’s worst auditors.

    Good to talk to you House :)

  6. I remember how Wall Street acted when Eliot Spitzer had to resign, they celebrated. If they were doing nothing wrong, then why was he a bother to them? As NY Attorney General, he made his name going after the corruption on Wall Street.
    He resigned on March 12. I wonder if he hadn’t been forced out would any of this have come out sooner? The Bush administration deliberately underfunded investigation and the Bush DOJ had to have stonewalled prosecutions, while they tried to run out the clock. Spitzer had his own state resources and Attorney General to go after them independent of the Feds. He had to go down. If the NSA spying turned out to be the way they found out about Spitzer’s call girls, it is all related and tied to Bush.

  7. According to a CBS News Money Watch report during 60 Minutes , the FBI will double the number of agents investigating financial crimes.

  8. That is good to hear, House. The statistics I read yesterday was alarming. They even quoted how few white collar crimes that actually get investigated now. It wasn’t pretty.

    I agree on Spitzer, he was getting too close and they took him down. Ethically, he did his job. I personally don’t care what he does after hours..

    Good point, part of this could have been prevented if he was still on the job. I believe he would have seen some of it coming. We could have been warned in advance of the corruption. It’s a shame that we will never know how close he really was.

    Have a good night House of Roberts :)

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