New York: Lehman Brothers Holdings Inc used accounting gimmicks and had been insolvent for weeks before it filed for bankruptcy in September 2008, a court-appointed examiner said, but he did not find extensive wrongdoing.
In a 2,200-page report made public on Thursday, examiner Anton Valukas, chairman of law firm Jenner & Block, reported the results of his more than year-long investigation into the firm’s collapse, which worsened the global financial crisis.
The examiner said that while some of Lehman’s management’s decisions “can be questioned in retrospect” and the firm’s valuation procedures for its assets “may have been wanting,” those responsible for the firm had used their business judgment and were largely not liable for the firm’s collapse.
He did not find that Lehman’s directors had explicitly violated their fiduciary duty.
However, in the report the examiner also revealed explosive allegations about a gimmick, known as “Repo 105,” that was used for the sole purpose of manipulating Lehman’s books.
The examiner concluded that the gimmick, which dated back to 2001 and was used without telling investors or regulators, gave the appearance that Lehman was reducing its overall leverage levels in 2008 when in reality it was not, partially leading to its collapse.
He also said Lehman could have potential claims against JPMorgan Chase & Co and Citibank in connection with demands for collateral and certain changes made to guaranty agreements in Lehman’s final days.
And Barclays Plc may have received some assets improperly when it took control of Lehman’s core US brokerage, he said in the report.
The examiner said there was also sufficient evidence to support a possible claim that the firm’s auditor Ernst & Young had been “negligent.”
Barclays and JPMorgan declined to comment and a Citi representative had no immediate comment. A spokesman for Ernst & Young did not comment, saying the firm had not yet had time to review the findings.
The report was completed in February and was allowed to be unsealed by the bankruptcy judge overseeing the case earlier on Thursday.