LEHMAN BROTHERS and sisters

Caused the financial crisis of 2008 (why?)

o Complex method of acctg, (repo method)
Repo method- a method wherein one company transfers an
asset to another company in exchange for short-term cash. The
borrower will pay back the cash and take back the asset they
have pawned (those assets are usually the underperforming
assets) To get bad assets off the books.
Hides the underperforming assets without the
government knowing because theres already enough
cash that is on hand. Whats reported in the financial
statements is the cash from pawning it rather than the
troubled assets.
Described this scheme as a sale rather than a loan. Not
disclosing that they would have to pay back the money
received from those assets. This also temporarily lowered
leverage. The resulting effect was to overstating their
value significantly. Hiding the debt because its
supposedly a loan. Ernst & Young, as well, were made
aware of the fraud but just like the management, did
nothing about it.
o Ethics, culture within the company
Paid extravagant remunerations, most especially to CEO Richard
Fuld who received about $500 million dollars in remuneration
and benefits.
o Corporate Governance
Basically, the audit committee, the board of directors, knew
nothing of this scheme that is perpetuated. Only those CFOs and
CEOs and some executives were made aware of this. But in a
congress hearing, CFO Richard Fuld denied of any knowledge as
to this fraud.
o Leniency of regulatory agencies?
SEC monitored Lehman Brothers closely to the point of taking
residence in their office. (but still things got out of hand and this
did not prevent nor stopped the scheme). They were basically
there when the letter from Matthew Lee was sent to the
executives and there when this scheme was used.
No case was filed by the SEC against the Lehman executives.
(maybe because they were, too, guilty of inaction, leniency, and
failure to address the problem?) This became an impediment to
a potential case because SEC was there, they saw the practice,
and did nothing about it. It will be as ironic as to chase after the
firm when SEC itself was closely monitoring the company.
One defense that was brought up by Richard Fuld was the close
monitoring of the company, where SEC daily monitored Lehman

Brothers and oversee their balance sheet, saw what the

management saw.
The audit firm (Ernst & Young) lol
The firm indirectly participated as they were already aware of
the scheme, but did nothing about it. This has helped Lehman
Brothers to continue to provide misleading information,
deceiving investors.

Effects:
-

Posed an economic meltdown, GLOBALLY! As nearly 26,000 employees lost

their jobs, investors lost all or almost all of their investment.
No executive was ever sued by the SEC. (may nakulong ba?)
Investors lost over $300 billion dollars

Question: after all the accounting scandals that happened in the past, how was this
one scandal not prevented? After all, Sarbanes-Oxley was put in place to avoid
schemes and scandals like this. Who lacked action?
Like it should have been prevented because this company is well-associated with
the government, with the Wall Street, the SEC! this company itself pioneered
commodity futures market. With that, does that mean that leniency was evident?
Because Lehman Brothers Holdings, Inc. was a company too big not to fail?