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 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.