NA0176

Randall D. Harris, California State University, Stanislaus

“ et me see if I understand this,” said the Lehman Brothers board member, “Are

L you directing us to put Lehman into bankruptcy?”2 After this question, there was
silence on the speakerphone. Christopher Cox, the Chairman of the U.S.
Securities and Exchange Commission, didn’t answer the Lehman board member’s ques-
tion. It was Sunday, September 14, 2008, and the board of directors of Lehman Brothers
was meeting, for the fourth time that weekend, in emergency session. (Exhibit A pres-
ents a brief biography of the members of Lehman Brothers’ board of directors; Exhibit B
presents a timeline of the events and Exhibit C lists the cast of characters presented in
this case.)
How had it come to this? Just that week, on Tuesday, September 9th, the board’s

Finance and Risk Committee had met and Lehman Brothers management had assured
3
the committee that Lehman Brothers had $42 billion in liquidity. Now, five days later,
4
Lehman had a liquidity problem.

There were a number of urgent questions that the board of directors had to untan-
gle, and untangle quickly. First, how serious was the liquidity problem? Second, what
were the board’s fiduciary obligations and responsibilities in a moment like this? Third,
what options did the board have available? Finally, and most critically, what was the
board going to do?
There was not much time left.

U.S. HOUSING MARKET COLLAPSES

After a long run-up, U.S. home prices peaked in the summer of 2005.5 During the
boom, housing prices greatly exceeded their long-run trend of price appreciation.
There were some who warned of looming problems, but these warnings were largely
ignored.6 One particularly attractive market during the boom was the market for sub-
prime mortgages. These mortgages, targeting borrowers who were traditionally poor
credit risks, were extremely lucrative (in the short-run) to the companies that issued
and serviced these mortgage loans. Subprime mortgages charged higher interest rates
on the loan, and generated larger fees than conventional mortgages. This made lenders
highly motivated to originate such mortgages. Further, as long as housing prices

Copyright © 2012 by the Case Research Journal and by Randall D. Harris

Lehman Brothers: Crisis in Corporate Governance 123

 increased, subprime borrowers could always refinance the mortgage or sell the property
if they got into trouble. In 2007, the subprime mortgage market in the U.S. was valued
at $1.2 trillion, a 600% increase from 20017, and 82% of the debt was rated AAA.8
Once housing prices peaked the game was over. By February of 2007, the market for
9
subprime mortgages had collapsed. Although subprime mortgages were a relatively

small part of the overall U.S. mortgage market, these mortgages had been widely secu-

ritized in the form of mortgage backed securities, or MBS. Subprime mortgages were

bought by lenders, pooled into a large bundle, sliced into various pieces, or tranches,

and then sold. Vendors of these securities had found an enthusiastic global market of
10
buyers. Investors were widely drawn to these securities for their above average yield and
11
the deceptively low foreclosure rate on the underlying subprime mortgages.

Unfortunately, underwriting standards for the subprime mortgages that backed these
12
MBS securities had deteriorated considerably during the boom.
As prices on houses began to drop, and the default rate on subprime mortgages
began to rise, the dilemma for investors became acute. No one was sure exactly who had
exposure to the resulting toxic (e.g. worthless or near-worthless) assets. Subprime mort-
gages had been securitized into numerous investment vehicles, including MBS, and the
issuers themselves were often unable to quickly identify where potential problems might
exist. “There were genuine fears about the locations of subprime risk concentrations
among counterparties,” said one researcher.13 It was this tremendous uncertainty that
contributed to a growing sense of panic in the markets. As the panic spread, it infected
the repo market, the short-term collateralized credit market that was the lifeblood of the
global banking system. Once the crisis reached the repo market, events rapidly began to
spiral out of control.14

Lehman Brothers takes on Risk

Lehman Brothers funded its daily operations in the overnight repo market. Lehman
Brothers, founded in 1850 and based in New York City, was the fourth largest invest-
ment bank in the United States in 2008.15 Holding approximately $650 billion to $700
billion of assets on its balance sheet, much of it tied to the subprime market, Lehman
needed billions of dollars from the repo market each day in order to be able to open for
business.16 Funded like other New York investment banks, Lehman Brothers’ business
model was not unique; all of the other investment banks at that time followed some
variation of a high-risk, high leverage model that required daily market borrowing, and
most critically, the confidence of lenders.17 Lehman borrowed short-term (often
overnight) and lent longer-term. This business model meant that its survival was tied
daily to the confidence of its overnight lenders. (Exhibit D shows selected quarterly
financial information for Lehman Brothers from August 31, 2007 to August 31, 2008.)
In 2006, Lehman Brothers had made a conscious decision to embark on an aggres-
sive growth strategy, and had deliberately focused on the subprime and commercial real
estate markets.18 This strategy was fully endorsed by Lehman’s board of directors.19
Lehman borrowed heavily to make increasingly risky loans, taking its leverage ratio up
to 30 times its underlying stockholder’s equity.20 As the sub-prime market collapsed in
2007, Lehman was slow to recognize the depth and severity of the crisis and what it
would eventually do to the commercial real estate market and its other lines of business.
Rather than pull back, the company decided to “double down” on its bets, hoping to
make enormous profits from buying into the declining housing market.21 As it did so,

124 Case Research Journal • Volume 32 • Issue 1 • Winter 2012

Lehman significantly exceeded prudent risk management and many of its own internal
controls.22
The bet on a housing market recovery proved to be wrong. By April of 2007, New
Century Financial Corporation, the U.S.‘s second largest subprime lender, filed for
bankruptcy. Even then, most did not recognize that the situation would worsen dramat-
ically. Indeed, U. S. Treasury Secretary Henry “Hank” Paulson commented at the time
that problems in the subprime mortgage market were “largely contained.”23 By August
of that year Lehman Brothers began to reduce its exposure to the subprime mortgage
market. Lehman closed its subprime mortgage unit, BNC Mortgage, and booked an
after-tax charge of $25 million and a goodwill write-down of $27 million. 1,200 peo-
ple lost their jobs.24 Even though Lehman had closed its subprime unit however, the
company retained many of these types of loans on its books.

The Pressure Increases

The U. S. Federal Reserve, seeing the increasing level of market distress, began cutting
the U.S. discount rate. On Friday, August 17, 2007, the Federal Reserve cut the dis-
count rate by 50 basis points, and expanded its lending from overnight to 30 days.
Despite the Federal Reserve’s efforts to ease market pressures, losses on mortgage-backed
securities began to spread quickly to all of the major investment banks, and particular-
ly to the firms Bear Sterns, Lehman Brothers and Merrill Lynch.
Bear Sterns was the first to go out of business. On Monday, March 17, 2008, Bear

agreed to be acquired by the bank JP Morgan Chase for $2/share, later amended to
$10/share.25 In this deal, the Federal Reserve agreed to take the first $30 billion in loss-
es on toxic Bear Sterns assets. The stock market reacted badly to news of this “merger.”
The stock of Lehman Brothers dropped 48% that day, only to recover to down 19% by
the end of trading. Lehman Brothers was widely expected to be the next investment
bank to fail.26 Also on that day, the Federal Reserve opened the discount window to all
of the primary dealers on Wall Street, an unprecedented act designed to stem the
increasing panic and liquidity bottlenecks in the credit markets. (Exhibit E shows
Lehman Brothers daily closing stock price from Friday, January 12, 2007 to Friday,
September 12, 2008.)
U.S. government officials, including Treasury Secretary Henry Paulson, New York
Federal Reserve President Timothy Geithner, and Securities and Exchange
Commissioner Christopher Cox, were strongly criticized for their role in the Bear Sterns
merger with JP Morgan Chase. The criticism from elected government officials in
Washington, D.C. in particular, was vicious. The Bear Sterns experience solidified the
opinion of key government officials that they could not afford to be seen as bailing out
any more investment banks. “I can’t be Mr. Bailout,” said Secretary Paulson.27
By summer of 2008, all of the remaining major investment banks in New York were
in distress. Losses on the mortgage-backed asset portfolios of the investment banks were
mounting almost daily. Losses were particularly acute for Lehman Brothers. Lehman
had booked a $2.8 billion loss for the second quarter of 2008. In an effort to improve
the firm’s liquidity, bankers inside Lehman turned souring real-estate investments into
highly-rated commercial paper, which they then used as collateral for cash. These secu-
rities, called Fenway commercial paper, were dubbed as “goat poo” by bank insiders.28
The Fenway commercial paper, named for Fenway Funding LLC (a subsidiary of
finance company Fenway Capital), allowed Lehman to finance longer-term assets such
as real estate loans with loans from investors such as money-market funds.29 The Fenway

Lehman Brothers: Crisis in Corporate Governance 125

 commercial paper was tied, among other things, to loans that Lehman had made for a
project in California’s Mojave Desert.30 Lehman used the Fenway commercial paper to
help keep itself afloat in the summer of 2008.
Looking for a merger to save the company, Lehman Brothers approached the bank
Morgan Stanley. These talks quickly stalled. In desperation, Richard “Dick” Fuld, the
Chairman of the Board and Chief Executive Officer of Lehman Brothers, told his attor-
ney to approach Bank of America about a deal.
After several weeks of phone calls and haggling, Dick Fuld met with Ken Lewis, the
CEO of Bank of America, at the offices of the New York Federal Reserve on Monday,
July 21, 2008. This meeting was arranged by Henry Paulson and Timothy Geithner.31
Several days after this meeting, Lewis called Fuld and told him that Bank of America
wasn’t interested, though he left the door open for further discussion. Other possible
bidders for Lehman included the Korea Development Bank and the British bank
Barclays, but negotiations between these firms and Lehman also stalled, restarted and
stalled.
Matters were spiraling quickly out of control. To make matters worse, the problems
were not confined to the New York investment banks, and in fact appeared to be spread-
ing. One area of particular concern was the two GSEs (Government Sponsored
Enterprises) Fannie Mae and Freddie Mac, whose distress was becoming unmistakable.
As the largest issuers of mortgage backed securities in the United States, the collapse of
one or both of these entities was simply unthinkable. On Friday, September 5, 2008,
with the assistance of the U.S. Federal Reserve, Freddie Mac and Fannie Mae were
placed into government receivership. The CEOs of both companies were fired, and the
common shareholders of both firms effectively held worthless shares. Support for the
failed institutions exceeded $100 billion each.32 The stock market reacted negatively,
and speculation regarding which banking institution would next fail intensified.

THINGS GET UGLY: WEEK OF SEPTEMBER 8TH

After the close of trading on Monday, September 8th, Korea Development Bank pub-
licly announced that they were withdrawing from bidding on Lehman Brothers. By 2
33
a.m. the next morning, every wire service in the world was reporting the news.

Lehman’s stock plummeted at the open of trading on Tuesday and kept diving. Secretary

Paulson recalled:
I returned to my office to find that once again all hell was breaking loose. Dow Jones

Newswire was reporting that Lehman’s talks with KDB (Korea Development Bank) had

fallen through. The firm’s shares were plunging and credit spreads widening-they would

top 400 basis points by day’s end. But I didn’t need a Bloomberg terminal to tell me what

was happening. Once more we had a big financial institution under assault, and no clear
34
solution in sight. If Lehman didn’t find a buyer soon, it would go down.

Lehman shares hit $7.79 per share at the close of trading that day, a 45% drop.
Furious negotiations ensued between the Federal Reserve, the U.S. Treasury
Department, JP Morgan Chase, and Citigroup over the fate of Lehman Brothers. At
one point during the day, Tim Geithner called Secretary Paulson, and Paulson asked
him if he thought he could hold things together through the close of trading on Friday.
Geithner replied that he thought so, but only if the markets believed that the govern-
ment was working on a solution to Lehman. “I’ll
lean on Ken Lewis (CEO of Bank of

126 Case Research Journal • Volume 32 • Issue 1 • Winter 2012

America),” Paulson said. “Maybe at the right price Bank of America will be willing to
35
do something.”

Finance and Risk Committee Meeting36

The Finance and Risk Committee of Lehman Brother’s Board of Directors met in per-
son at 10 a.m. on Tuesday, September 9th. Present for the meeting were Mr. Kaufman
(Chair), Ms. Evans, Mr. Akers, Mr. Berlind and Mr. Hernandez. After approval of the
minutes, Paolo Tonucci, Lehman Brothers’ treasurer, reviewed the firm’s liquidity and
capital condition, and also presented a summary of general market conditions. Mr.
Tonucci said, “ . . . long-term debt market conditions had worsened in the quarter, with
the market essentially shut down.” Short-term debt markets were also challenging, he
said, with investors being averse to funding debt that wasn’t easily used as collateral with
the European Central Bank or the U.S. Federal Reserve. With regard to Lehman’s cur-
rent situation, Mr. Tonucci said that:
. . . the firm was generally able to maintain its liquidity . . . primarily as a result of the

deleveraging of its balance sheet . . . the firm’s liquidity pool at the end of the third quar-

ter was $42 billion (versus $45 billion at the end of the second quarter).

Mr. Tonucci went on to tell the committee that the firm had reduced its leverage
ratios over the last several quarters (See Exhibit D), and had also reduced its exposure
to a number of less liquid assets. He then briefly touched on the recent downgrades to
the firms credit ratings.
The committee had a number of questions for Lehman management, addressing
among other things, access to funding sources for the firm, the Federal Reserve's pri-
mary dealer facility, and the status of the commercial paper market. After some further
discussion, Mr. Kaufman (Chair) introduced a resolution to reduce the firm's annual
dividend to $0.05 per share (from $0.60 per share in 2007), stating that this was “an
efficient way to preserve capital.” The resolution passed unanimously, and the commit-
tee then excused Lehman management and met in private session.

Lehman Liquidity Crisis

The next day, Wednesday, September 10th, newspapers were reporting the increasing
fear in New York that Lehman Brothers might fail.37 Confidence, so critical for
Lehman’s daily operations, was quickly being lost. There were reports to management
from Lehman’s trading floor that hedge funds were pulling their money out of the com-
pany. Lehman’s largest shareholder, GLG Partners, began to reduce the amount of busi-
ness that it did with the firm.38 Under pressure from U.S. government officials, Bank of
America CEO Ken Lewis agreed to send a team to begin due diligence on a possible
deal for the company. After markets had closed, Lehman prematurely announced a $3.9
billion loss for the third quarter of 2008, as well as a recapitalization plan for the firm.39
Wall Street hated the proposed Lehman Brothers recapitalization plan. It simply
wasn’t enough.40 Lehman CEO Dick Fuld, who had been working the phones that
week, reached out to Bob Diamond, the CEO of Barclays Capital, on Thursday,
September 11th. Rebuffed by Diamond, Fuld called Tim Geithner. After a call from
Geithner, Diamond began negotiations with the U.S. government regarding a possible
acquisition of Lehman. Although Diamond and Fuld talked later that day, Dick Fuld’s
role in the negotiations effectively ended at that point.41 U.S. government officials, who

Lehman Brothers: Crisis in Corporate Governance 127

 hoped to start a competition to acquire the firm, now had two firms engaged in nego-

tiations for Lehman Brothers.

After markets closed on Thursday, September 11th, Lehman Treasurer Paolo

Tonucci panicked. “We’ve got a real problem,” he said to co-workers. “JP Morgan is
pulling another $5 billion in collateral from us! I just got off the phone with Jane Buyers
Russo (head of JP Morgan’s broker-dealer unit). She says that we need to wire it by
tomorrow. And she might pull another $10 billion by the weekend.” Lehman had
pledged Fenway commercial paper as collateral to JP Morgan, and JP Morgan now sus-
pected that the notes were “worth practically nothing as collateral.” JP Morgan demand-
ed cash from Lehman to replace these notes and other collateral, and they wanted their
money the next day. Lehman posted the money on Friday, but it was essentially the last
$5 billion of cash that the firm had readily available.
By the close of trading on Friday, September 12th, it was clear that Lehman Brothers
was in trouble. A secret meeting, “The Big One” according to Lloyd Blankfein, CEO
of Goldman Sachs, was convened at 6 p.m. that evening at the offices of the New York
Federal Reserve.45 Representatives from most of the major banks and investment banks
in New York were in attendance. Lehman CEO Dick Fuld was not invited.46 The meet-
ing ended without any meaningful resolution or plan of action, but with an agreement
to reconvene over the weekend.

WEEKEND OF SEPTEMBER 13-14

Negotiations over the fate of Lehman Brothers began early on the morning of Saturday,
September 13th. Just after 7 a.m., Secretary Paulson called Ken Lewis about Bank of
America acquiring Lehman Brothers. Lewis reported that, after a closer inspection of
Lehman’s books, his bankers believed that there was at least $40 billion in bad assets on
Lehman’s books, and possibly much, much more. Paulson believed at this point that
Lewis didn’t really want to buy Lehman, but scheduled an appointment with Bank of
America for later in the morning.47 Paulson, suspecting that Bank of America might
balk, was on the phone by 8 a.m. with Barclays, a United Kingdom—based bank, about
acquiring Lehman. Barclay’s bankers were even more pessimistic about Lehman’s assets
than Bank of America, estimating that at least $52 billion of Lehman’s balance sheet was
bad. While all this was going on, representatives from Lehman Brothers were waiting
upstairs, on the 7th floor of the Federal Reserve building in New York, wondering about
their fate.48
Shortly before 11 a.m., Secretary Paulson, Tim Geithner, and other government rep-
resentatives met with bankers and lawyers from Bank of America. The mood for the
meeting was chilly, with personal animosity between Secretary Paulson and several of
the Bank of America representatives barely contained.49 Trying to break the tension,
Geithner asked the Bank of America group, “So what’s the latest?”50 In clear terms, the
Bank of America team told the U.S. Treasury Secretary that they were not interested in
buying Lehman Brothers unless the government was willing to help backstop the trans-
action. Paulson recounts:
. . . after poring over Lehman’s books, Bank of America now believed that to get a deal

done it would need to unload between $65 billion and $70 billion of bad Lehman assets.

Bank of America had identified, in addition to $33 billion of soured commercial mort-

gages and real estate, another $17 billion of residential mortgage-back securities on

Lehman’s books that it considered to be problematic. In addition, its due-diligence team

128 Case Research Journal • Volume 32 • Issue 1 • Winter 2012

 had also raised questions about other Lehman assets, including high-yield loans and

asset-backed securities for loans on cars and mobile homes, as well as some private-equi-

ty holdings. The likely losses on all these bad assets, they estimated, would wipe out

Lehman’s equity of $28.4 billion.

We asked if they (Bank of America) would be willing to finance any of the assets they
51
wanted to leave behind or take more losses. They said no.

As the meeting wore down, it was clear that the U.S. government was unwilling to
backstop the Lehman-Bank of America deal any further. “Not one penny will come
from the government,” said Paulson. However, Secretary Paulson wanted to keep Bank
of America in the hunt in order to possibly leverage a Barclays bid for the company.53

Board of Directors Conference Call54

The first Lehman board meeting of the weekend was a conference call at noon on
Saturday, September 13th. Dick Fuld reported to the board on the status of negotia-
tions. “There is no resolution yet with respect to Bank of America, but it seems to be a
game of chicken between Bank of America, on the one hand, and the Federal Reserve
and Treasury, on the other hand,” he said. Fuld also updated the board on the negotia-
tions between Lehman and Barclays Bank, but said that “Barclays would prefer not to
assume . . . (Lehman’s) commercial real estate assets.”
Thomas Russo, Lehman’s Chief Legal Officer, then reported to the board on the
meeting that had been held at the Federal Reserve on Friday. He told the board that he
didn’t even know about the meeting until 5 p.m., and that the Federal Reserve had
expressed concerns to him about the systemic risk that Lehman Brothers posed to the
financial markets. Russo reported on the various negotiations that were occurring, all
with the express intent that any solution would not involve federal money. Further, “the
Federal Reserve believes that any bankruptcy filing (by Lehman) would be extremely
disruptive . . .” he said.
The Lehman board had a lot of questions for management at that point. How do
we spin off the commercial real estate assets? Are other financial institutions going to
provide the equity that Lehman needs to spin off the commercial real estate? How
would a spin-off work if Lehman does a deal with Bank of America?
The discussion then shifted to the negotiations with Bank of America. What kind
of price would Bank of America be willing to pay? Someone pointed out that it should
be emphasized to the Federal Reserve that a Lehman bankruptcy would be a systemic
risk. After further discussion of this and additional discussion about funding employee
health care costs in the event of a bankruptcy filing, the meeting adjourned.

The Board Reconvenes55

The board reconvened via conference call at 5 p.m. on Saturday. Dick Fuld reported to
the board on the structure of a potential deal with Barclays. Barclays would buy the
operating subsidiaries of the corporation for $3 billion, and Lehman shareholders would
retain all of the commercial real estate assets. “Under the proposed structure, a consor-
tium of financial institutions would provide new debt financing to Lehman (estimated
at $40 billion), with the preferred and common equity remaining at Lehman Brothers,”
Fuld said. Further, the deal was contingent upon the approval of the U.K. Financial
Services Authority (FSA), because of Lehman’s significant London operations.

Lehman Brothers: Crisis in Corporate Governance 129

 “Is this a real offer?” said a board member. “What about the financing? What are the

terms?” said another. After some discussion, Lehman management summarized the pro-
posed structure of the deal as Barclays gets the “good” bank and Lehman shareholders
get the “bad bank.” Another board member wanted to know about the status of discus-
sions with Bank of America. “Phone calls to Bank of America’s Chief Executive Officer
and to its General Counsel have not been returned,” was the reply. Lehman is “over a
barrel” said a board member, frustrated with the status of negotiations. The board dis-
cussed using the systemic risk of a Lehman failure being a source of negotiating lever-
age. After further discussion regarding getting the FSAs approval of the Barclays deal
and a number of other matters, the board meeting adjourned.

Sunday Morning Breakdown

New York Fed President Geithner was on the phone by 7:15 a.m. Sunday morning,
September 14th. He talked to Bob Diamond, CEO of Barclays Capital, regarding their
possible acquisition of Lehman. Barclays had a working proposal on the table to com-
plete the acquisition. Diamond, who had left the Fed building at 4 a.m. to join a board
meeting conference call, reported to Geithner that he was having trouble with his
London-based regulators, and specifically the UK’s Financial Services Authority (FSA).
Not only were UK regulators concerned about the due diligence on Lehman and the
potential losses from a merger with Barclays, but they were also increasingly concerned
about the stability of their own financial system. When Secretary Paulson joined
Geithner in his office at 8 a.m., Paulson recalled, “We were beside ourselves. This was
the first time we were hearing the FSA might not support the deal.”56
Nevertheless, the government team decided to present the proposed deal to the now-
reassembled group of CEOs downstairs at the New York Federal Reserve Building in
lower Manhattan at 10 a.m. At this meeting, led by Secretary Paulson, Tim Geithner,
and Securities and Exchange Commissioner Chris Cox, they announced that the U.S.
Government had “good news: there was an offer on the table for Lehman Brothers.”57
Barclays Bank, they said, would acquire Lehman, and what was needed from the CEOs
present was $30 billion in financing for a “bad bank”58. This “bad bank” would guaran-
tee the assets that Barclays had refused to acquire as part of their deal for Lehman
Brothers. Negotiations then ensued among the CEOs to raise the needed capital
amongst the New York banks to support the “bad bank” deal.
By late Sunday morning, Secretary Paulson was reasonably confident that he had a
deal to save Lehman well under way. The New York CEOs had reached agreement on
$30 billion in capital to fund Lehman’s “bad bank.” In the meantime, however, there
had been intense and hurried negotiations with UK regulators. Tim Geithner had
numerous conversations with London, and the UK side had expressed reservations
regarding what was occurring in New York. Further, and to a great extent, they felt out
of the loop. To smooth the waters, Secretary Paulson decided to call Alistair Darling,
Britain’s Chancellor of the Exchequer. Unfortunately, the Chancellor was unwilling to
aid the U.S government with Lehman. “We are very concerned over here,” he said.
“Lehman has a significant business in the U.K., and we have real concerns as to whether
59
it is adequately capitalized.”

“He’s not going to do it,” Paulson told Geithner. “He said he didn’t want to import

our cancer.”60 The government team assembled in Geithner’s office was stunned, and
multiple, frantic conversations broke out. Geithner sat for a moment, and then after
some reflection said, “Okay. Let’s go to Plan B.”61 The government group discussed what

130 Case Research Journal • Volume 32 • Issue 1 • Winter 2012

to do next. After some discussion, the decision was made to begin preparing Lehman
for bankruptcy. “At that moment, I did not have time for regret, recriminations, or sec-
ond-guessing,” recalled Paulson.62 The meeting broke up, and the government team pre-
pared to relate the news to the group of banking CEOs downstairs.
The CEOs were stunned, angry. “But we have the money!” said one banker.63 “The
British screwed us,” Paulson said.64 A general feeling of being blindsided permeated the
room. After some time, the discussion moved to mechanisms for unwinding Lehman
positions, a daunting task even under good circumstances. Talk also touched on mech-
anisms for dealing with the next bank failure, possibly an emergency fund with a capi-
talization of at least $100 billion.

Sunday Evening Board Meeting65

After considerable delay, the Lehman board convened, in person, at 5 p.m. on Sunday
evening. Thomas Russo gave an update to the board on the status of negotiations.
“While (we) believed that we had reached a deal with Barclays . . . the FAS said that it
would not grant Barclays the needed exemption from certain capital rules,” he said. As
for Bank of America, ‘it appeared that they were instead in discussions to acquire Merrill
Lynch.”
“The firm has a liquidity problem,” Russo reported. Much of the firm’s liquidity was
tied up at clearing banks (primarily JP Morgan Chase Bank). The Federal Reserve was
lending through its emergency lending facility, but was only allowing investment grade
securities to be used as collateral. Russo said that Lehman management were in meet-
ings with the Federal Reserve discussing the need for an expanded window (i.e., to allow
non-investment grade securities to be used as collateral for borrowing), but so far to no
avail. Russo said that the Federal Reserve told management that it preferred that
“Lehman Brothers be wound down in an orderly fashion.” (Exhibit F shows Lehman
Brothers’ Liquidity Pool as of September 12, 2008).
Lehman Brothers’ London operations would open first on Sunday night (London
was 5 hours ahead of New York City), and they did not have the cash available to open.
Under U.K. law, this would immediately trigger administrative proceedings (bankrupt-
cy in U.S. terms), and that action would trigger defaults on every derivative on
Lehman’s balance sheet, worldwide. Russo described the potential default as “represent-
ing a massive systemic risk.” The board asked if the Federal Reserve could be used to
fund the firm’s London operations. Management responded that “despite the efforts to
convince the Fed on this point, should the Fed not change its position, the firm would
have to initiate the U.K. administrative process.”
At this point the board engaged in a discussion of the concept of an orderly liquida-
tion. They were also concerned about the serious market consequences if the Fed did
not change its position. Russo said, “. . . management was not making any recommen-
dation at this time regarding bankruptcy.” The board further discussed the impact on
the market of Lehman filing for bankruptcy. The meeting adjourned at 6:10 p.m.

Secretary Paulson gets Impatient

The Asian financial markets opened at 7 p.m. Eastern Standard Time (Tokyo was 14

hours ahead of New York City) and Lehman Brothers had not filed for bankruptcy.

Secretary Paulson asked his Chief of Staff, Jim Wilkinson, if Christopher Cox, the

Chairman of the Securities and Exchange Commission, had talked to Lehman Brothers

Lehman Brothers: Crisis in Corporate Governance 131

 about filing for bankruptcy. Wilkinson replied that he had spoken with Cox, but that

Cox had not yet taken any action.

Paulson walked down to Cox’s office. “What the hell are you doing? Why haven’t
you called them?” said Paulson.66 “The Asia markets are opening! You need to get your
announcement out soon, and you can’t do that unless you are coordinating with
Lehman. It is essential that you call the company now.”67 Cox responded that he wasn’t
certain that it was appropriate for him to make such a call. “You guys are like the gang
that can’t shoot straight!” Paulson yelled. “This is your job. You have to make the phone
call.”68

The Final Board Meeting

Lehman’s fourth board meeting of the weekend reconvened, in person, at 7:55 p.m. on
Sunday evening. Thomas Russo started out by stating that the Federal Reserve had
expressed its desire that the board approve a Chapter 11 bankruptcy filing as soon as
possible. He also reported that Lehman’s London operations had been informed that
they did not have the cash to open for operations, and that they were initiating admin-
istrative proceedings. Lehman management could possibly sell their London operations,
he said.69
The board began to discuss its fiduciary duties.70 Lawyers representing Lehman
Brothers showed up at this point, and the board began to discuss their meetings with
the Federal Reserve. They covered topics such as whether Lehman Brothers would file
for bankruptcy, and the specifics of how the Federal Reserve could facilitate the unwind
of various Lehman contracts in the financial markets. Bankruptcy or not, Lehman
Brothers would need financing. The discussion moved to the matter of 2.5 million
derivatives contracts defaulting if they filed for bankruptcy.71
Mr. Ian T. Lowitt, Lehman’s Chief Financial Officer, joined the meeting and dis-
cussed the firm’s cash position:
Mr. Lowitt reported that cash and collateral were being tied up by the Firm’s clearing

banks, with (JP Morgan) Chase holding approximately $17 billion of collateral (half in

collateral and half in cash). Mr. Lowitt emphasized the critical nature of securing the

return of that cash and collateral from Chase. Mr. Lowitt reported that cash had drained

very quickly over the three days of the previous week and that Chase had demanded an
72
additional $5 billion of collateral on Friday.

Lehman had $1.4 billion in liquidity that was readily and easily convertible to cash.
They faced a projected cash shortfall of $4.5 billion the next day, Monday, September
15th.73
At this point Dick Fuld’s assistant came in the meeting and handed Fuld a slip of
paper. Fuld began to slump in his chair as he read the note. “Hold on a minute . . . ”
Fuld said, “Chris Cox is calling and he wants to address us.”74 This surprised everybody.
No one could recall a time when the chairman of the Securities and Exchange
Commission had asked to directly address a company’s board of directors. “Maybe we
shouldn’t take the call,” somebody said.74 That idea was quickly shot down.
Fuld leaned in to the speakerphone and addressed Cox. “Ah, Chris, this is Dick
Fuld. We got your message, and, ah, the board is in session here, everyone is here, all
the directors and the firm’s counsel,” he said.76 “A Lehman bankruptcy filing would be
in the best interest of the nation”, Cox said. “I understand the difficulty of the board’s
position, but in the judgment of U.S. and international regulators, a decision needs to

132 Case Research Journal • Volume 32 • Issue 1 • Winter 2012

be made quickly because of the markets.”77 One of Cox’s lawyers on the call agreed, say-
ing that the Federal Reserve and the Securities and Exchange Commission were in
agreement that Lehman should file for bankruptcy.
Board member Thomas Cruishank asked, “Why is it so important for Lehman to
be in bankruptcy?”78 Cox replied that the markets were in turmoil and that the govern-
ment had taken everything into consideration. Other board members repeated varia-
tions of this same question, and began to grow increasingly frustrated with the answers
they were getting from U.S. government officials and their lawyers.
“Let me see if I understand this,” said Cruishank, “Are you directing us to put
Lehman into bankruptcy?”79 This question was greeted with silence on the speaker-
phone. “Ah, give us a few moments, and we will get right to you,” said Cox.80 Once
someone pressed the mute button on the speakerphone, the boardroom erupted into
questions. The general tenor of the questions was, “What the hell is going on here?”81
Ten minutes later, Cox was back on the line with his lawyers. “The decision on
whether to file for bankruptcy protection is one that the board needs to make. It is not
the government’s decision,” he said. “But we believe that in your earlier meetings with
the Fed, it was made quite clear what the preference of the government is.”82
Board
member John Akers replied, “So you’re not actually directingus?” “I’m
83
not saying any-
thing more than what I just said,”Cox said. One of the lawyers representing the Federal
Reserve and the Securities and Exchange Commission (SEC) then said that “ . . . the
view of the regulators as to the appropriateness of a bankruptcy filing was expressed at
the meeting with the Fed that afternoon, but they (i.e. the Fed and SEC) did not want
to influence theBoard’s exercise of its fiduciary duties.”84

INTHE BOARD’S HANDS

The agenda for the board was now serious and urgent. The first issue that needed clar-
ification was the seriousness of the firm’s liquidity problem. The board needed to con-
sider the reports from Lehman management regarding the firm’s liquidity. Was there
time to renegotiate with any of the key lenders to Lehman, such as JP Morgan Chase
or the Federal Reserve? What should be the board’s position with regard to Lehman’s
liquidity problem?
The next issue was, what were the board’s fiduciary obligations and responsibilities?
To whom did they owe these responsibilities? What was the order of priority for these
responsibilities? What were the risks involved in making such decisions on behalf of
Lehman Brothers?
It appeared that the board had three main options with which to contend. The
board could further delay a decision regarding bankruptcy. It was clear that there was
pressure to act, but did the board need more time to deliberate? Would delay buy pre-
cious time for further negotiations? Second, the board could vote to not file for bank-
ruptcy, and direct Lehman Brothers to open for business. What would be the possible
consequences of such a decision? Was this a feasible option? Where would the liquidity
needed for the firm to open come from?
Third, the board could vote to file for bankruptcy. But what would such a decision

do to the company? There were 2.5 million derivatives contracts that would default if

the firm filed for bankruptcy. Lehman traded numerous derivative instruments on a

worldwide basis, including interest rate, currency and credit default swaps, foreign

exchange forward contracts and options, and others. Many of these derivatives traded

Lehman Brothers: Crisis in Corporate Governance 133

 over the counter (OTC), making market pricing difficult. However, the derivatives
could have a notional value of as much as $35 trillion.85 The potential effect of such a
default on Lehman’s counterparties and the global financial markets was unknown.
Wouldn’t it also mean that all of Lehman’s employees, including management and the
board, would effectively be out of a job?
The fate of Lehman Brothers was now in the hands of its board of directors.

134 Case Research Journal • Volume 32 • Issue 1 • Winter 2012

Exhibit A Lehman Brothers Board of Directors 2008

Name Brief Biography

Mr. Ainslie, a private investor, was the former President, Chief Executive
Michael L. Ainslie
Officer and a Director of Sotheby’s Holdings. Mr. Ainslie served as a mem-
Director Since 1996
ber of the Audit Committee for Lehman Brothers’ Board of Directors.
Age: 64
Total Compensation, 2007: $397,538
Mr. Akers, a private investor, was the retired Chairman and CEO of

International Business Machines Corporation. Mr. Akers had a 33-year

John F. Akers
career with IBM. Mr. Akers served as the Chairman of the Compensation
Director Since 1996
and Benefits Committee and as a member of the Finance and Risk
Age: 73
Committee for Lehman Brothers’ Board of Directors.

Total Compensation, 2007: $360,538

Mr. Berlind, a private investor, had been a theatrical producer and principal

Roger S. Berlind of Berlind Productions since 1981. Mr. Berlind served as a member of the

Director Since 1985 Audit Committee and the Finance and Risk Committee for Lehman

Age: 77 Brothers’ Board of Directors.

Total Compensation, 2007: $352,538
Mr. Cruishank was the Chairman and Chief Executive Officer of
Thomas H.
Halliburton company, from 1989 to 1995. He had been with Halliburton
Cruishank
since 1969. Mr. Cruishank served as the Chairman of the Audit Committee
Director Since 1996
for Lehman Brothers’ Board of Directors.
Age: 76
Total Compensation, 2007: $385,038
Ms. Evans was a career officer in the United States Navy, retiring as Rear
Marsha Johnson
Admiral in January 1998. Ms. Evans served as the Chairman of the
Evans
Nominating and Corporate Governance Committee for Lehman Brothers’
Director Since 2005
Board of Directors.
Age: 60
Total Compensation, 2007: $373,038
Mr. Fuld had been Chairman of the Board of Directors of Lehman Brothers

since 1994 and Chief Executive Officer of Lehman Brothers and Lehman

Brothers International since 1993. Mr. Fuld joined Lehman Brothers in

1969, working as a trader in commercial paper.

Richard S. Fuld, Jr.
2007 Salary: $750,000
Director Since 1990
Stock Awards: $26,968,528
Age: 61
Option Awards: $2,238,600

Non-Equity Incentives: $4,250,000

Other Compensation: $174,908

Total Compensation, 2007: $34,382,036

Sir Christopher Gent was the Chief Executive Officer for Vodaphone Group

from 1997 until his retirement in July 2003. He was also the non-executive
Sir Christopher Gent
Chairman for GlaxoSmithKline plc. beginning in 2005. Sir Christopher
Director Since 2003
served as a member of the Audit Committee and the Compensation and
Age: 59
Benefits Committee for Lehman Brothers’ Board of Directors.

Total Compensation, 2007: $365,538

Jerry A. Grundhofer Mr. Grundhofer was the Chairman Emeritus and retired Chief Executive

New Director Officer of U.S. Bancorp. Mr. Grundhofer served as the Chairman of U.S.

Age: 63 Bancorp from December 2002 until December 2007

Lehman Brothers: Crisis in Corporate Governance 135

 Exhibit A (continued)

Name Brief Biography

Mr. Hernandez was the retired Chairman and Chief Executive Officer

of Telemundo Group, Inc., where he served from August 1998 to

Roland A. Hernandez
December 2000. Mr. Hernandez was the founder and Director of
Director Since 2005
Interspan Communications. Mr. Hernandez served as a member of the
Age: 50
Finance and Risk Committee for Lehman Brothers’ Board of Directors.

Total Compensation, 2007: $325,038

Dr. Kaufman had been President of Henry Kaufman & Co. Inc. since

Henry Kaufman 1988. Prior to 1988, he was with Salomon Brothers, Inc. for 26 years.

Director Since 1995 Dr. Kaufman served as the Chairman of the Finance and Risk

Age: 80 Committee for Lehman Brothers’ Board of Directors.

Total Compensation, 2007: $349,388

Mr. Macomber had been a Principal of JDM Investment Group, a pri-

vate investment firm, since 1992. He was also the Chairman and

President of the Export-Import Bank of the United States from 1989 to

John D. Macomber
1992. Mr. Macomber served as a member of the Compensation and
Director Since 1994
Benefits Committee, the Executive Committee, and the Nominating
Age: 80
and Corporate Governance Committee for Lehman Brothers’ Board of

Directors.

Total Compensation, 2007: $377,038

Source: Lehman Brothers Proxy Statement, 2008

136 Case Research Journal • Volume 32 • Issue 1 • Winter 2012

Exhibit B Lehman Brothers Timeline
Summer, 2005:
U.S. Housing prices peak
February, 2007:
U.S. subprime mortgage market collapses
April, 2007:
New Century Financial Corporation bankruptcy
August, 2007:
Lehman Brothers closes BNC Mortgage unit
August 17, 2007:
Federal Reserve cuts discount rate
March 17, 2008:
Bear Sterns acquired by JP Morgan Chase
July 21, 2008:
Lehman CEO Dick Fuld meets Bank of America CEO Ken Lewis at NY Federal Reserve
September 8, 2008:
Korea Development Bank withdraws Lehman bid
September 9, 2008:
Lehman Finance and Risk Committee meeting
September 10, 2008:
U.S. newspapers report that Lehman Brothers may fail
September 11, 2008:
Lehman CEO Dick Fuld calls Bob Diamond, CEO of Barclays Capital
September 12, 2008:
Banking CEOs meet at New York Federal Reserve
September 13, 2008:
Negotiations over Lehman Brothers in New York, Lehman Board meets twice
September 14, 2008:
Negotiations over Lehman Brothers, Lehman Board meets, Phone call from SEC
Chairman Cox at second board meeting of the day

Lehman Brothers: Crisis in Corporate Governance 137

 Exhibit C Cast of Characters

Financial Institutions
Bank of America
Lewis, Kenneth President, Chairman and CEO
Barclays Capital
Diamond, Bob Chief Executive Officer
Goldman Sachs
Blankfein, Lloyd Chairman and Chief Executive Officer
JPMorgan Chase
Buyers Russo, Jane Managing Director
Lehman Brothers
Fuld, Richard “Dick” Chief Executive Officer
Lowitt, Ian Chief Financial Officer
Russo, Thomas Chief Legal Officer
Tonucci, Paolo Treasurer

United Kingdom
Darling, Alistair Chancellor of the Exchequer

U.S. Government
Department of the Treasury
Paulson, Henry “Hank” Secretary of the Treasury
Wilkinson, James Chief of Staff
Federal Reserve Bank of
New York
Geithner, Timothy President
Securities and Exchange
Commission
Cox, Christopher Chairman

138 Case Research Journal • Volume 32 • Issue 1 • Winter 2012

Exhibit D Lehman Brothers Selected Financial Information

August 31, 2007 to August 31, 2008

(Dollars in Millions, except per share data)

At or for the Quarter Ended

Aug 31, 2007 Nov 30, 2007 Feb 29, 2008 May 31, 2008 Aug. 31, 2008
Income Statement
Revenues:
Principal Transactions $1,612 $1,775 $773 $(3,442) $(5,273)
Investment Banking $1,071 $832 $867 $858 $611
Commissions $674 $689 $658 $639 $569
Interest and Dividends $10,910 $11,136 $9,635 $7,771 $6,064
Asset Management & Other $472 $458 $437 $414 $432
Total Revenues $14,739 $14,890 $12,370 $6,240 $2,403
Interest Expense $(10,431) $(10,500) $(8,863) $(6,908) $(5,306)
Net Revenues $4,308 $4,390 $3,507 $(668) $(2,903)
Non-Interest Expenses
Comp. & Benefits $2,124 $2,164 $1,841 $2,325 $1,950
Non-Personnel Expenses $979 $996 $1,003 $1,094 $971
Income before Tax $1,205 $1,230 $663 $(4,087) $(5,824)
Net Income $887 $886 $489 $(2,774) $(3,927)
Earnings per Share
Basic $1.61 $1.60 $0.84 $(5.14) $(5.92)
Diluted $1.54 $1.54 $0.81 $(5.14) $(5.92)
Financial Ratios (%)
Return on Stockholdersʼ Equity
17.1% 16.6% 8.6% NMF NMF
(annualized)
Return on Tangible Stockholdersʼ
21.1% 20.6% 10.6% NMF NMF
Equity (annualized)
Pre-Tax Margin 28.0% 28.0% 18.9% NMF NMF
Financial Condition
Total Assets $659,216 $691,063 $786,035 $639,423 $600,000
Net Assets $357,102 $372,959 $396,673 $327,774 $310,915
Total Stockholdersʼ Equity $20,638 $21,395 $21,839 $19,283 $19,450
Tangible Equity Capital $22,164 $23,103 $25,696 $27,179 $29,277
Book Value per share $38.29 $39.44 $39.45 $34.21 $27.29
Leverage Ratio 30.3x 30.7x 31.7x 24.3x 21.1x
Net Leverage Ratio 16.1x 16.1x 15.4x 12.1x 10.6x
Common Stock Outstanding 529.4 531.9 551.4 552.7 689.0

Source: Lehman Brothers Press Release September 2008 & Lehman Brothers 10-Q Statements
Note: NMF = Not Meaningful

Lehman Brothers: Crisis in Corporate Governance 139

 Exhibit E Lehman Brothers (LEH) Daily Trading Volume
and Stock Price

January 12, 2007 to September 12, 2008

Source: Morningstar Document Research

140 Case Research Journal • Volume 32 • Issue 1 • Winter 2012

Exhibit F Lehman Brothers Liquidity Pool86

September 12, 2008

(US Dollars)

Ability to Monetize Collateral Type 12-Sep Position

High UK Deposit $216,000,000

US Deposit $560,000,000

US Money Funds $96,000,000

Boxed Assets $562,000,000

Total $1,434,000,000

Mid US CLO $734,000,000

US Money Funds $200,000,000

Total $934,000,000

Low US CLO $2,490,000,000

UK Bond Funds $522,000,000

US Deposit $9,400,000,000

UK Deposit $947,000,000

UK Money Funds $904,000,000

US Money Funds $750,000,000

Cash at Banks $360,000,000

Boxed Assets $4,709,000,000

Boxed Assets $10,039,000,000

Total $30,121,000,000

Total Liquidity
$32,489,000,000
Pool

Source: Lehman Brothers Internal Document

Lehman Brothers: Crisis in Corporate Governance 141

 NOTES
1. Copyright © 2012 by the Case Research Journal and by Randall D. Harris. This
case study was prepared as a basis for class discussion rather than to illustrate either
effective or ineffective handling of an administrative situation. All materials in this
case are drawn from publicly available sources. The author would like to thank the
editor and reviewers of the Case Research Journal for their helpful comments. An
earlier version of this case was presented at the 2011 North American Case
Research Association conference in San Antonio, Texas.
2. Sorkin, A. (2009). Too Big to Fail. New York: Viking, pp. 367.
3. Minutes of the Finance and Risk Committee, Lehman Brothers Holdings Inc.,

September 9, 2008.

4. Minutes of the Board of Directors, Lehman Brothers Holdings Inc., September

14, 2008.

5. S&P/Case-Shiller Home Price Index. Retrieved at www.standardandpoors.com.

6. See for example Shiller, R. (2000) Irrational Exuberance. Princeton, NJ: Princeton
University press.
7. Greenspan, A. (March 9, 2010). The Crisis. Brookings Institution Working Paper.
Retrieved at www.brookings.edu.
8. Gorton, G. (February 20, 2010). Questions and answers about the financial crisis.

Paper prepared for the US Financial Crisis Inquiry Commission. Retrieved at

http://www.fcic.gov/.

9. Greenspan, A. (March 9, 2010).

10. For additional discussion on securitization, see The Financial Crisis Inquiry Report
(January 2011). Retrieved at http://www.fcic.gov.
11. Ibid. See Section 2 for a more detailed discussion.
12. Reavis, C. (July 22, 2009). The Global Financial Crisis of 2008-2009: The Role

of Greed, Fear and Oligarchs. MIT Working Paper #09-093.

13. Gorton, G. (February 20, 2010).

14. Ibid.

15. Chapman, P. (2010). The Last of the Imperious Rich: Lehman Brothers, 1844-2008.
NY, NY: Penguin Group.

16. Valukas, A. (2010). Lehman Brothers Holdings Inc. Chapter 11 Proceedings

Examiner’s Report, p. 3. Retrieved at lehmanreport.jenner.com.

17. Ibid.

18. Ibid. p. 4.

19. Ibid, p. 76.

20. See Exhibit B in this case study.

21. Valukas, A. (2010).
22. Ibid.

23. Paulson, H. (2010). On the Brink. New York: Business Plus, p. 66.
24. Kulikowski, L. (August 22, 2007.) “Lehman Brothers Amputates Mortgage Arm.”
Retrieved at www.thestreet.com.

142 Case Research Journal • Volume 32 • Issue 1 • Winter 2012

25. See Sorkin (2009) and Paulson (2010) for more discussion regarding the $2 per
share price for Bear Sterns.
26. Valukas, A. (2010). p. 5.

27. Sorkin, A. (2009). p.282.

28. Richard, C. (March 11, 2011). “Lehman failed lending to itself in alchemy elud-
ing Dodd-Frank.” Bloomberg News. Retrieved at www.bloomberg.com.
29. Ibid.

30. Ibid.

31. Ibid, p. 204.

32. Paulson, H. (2010). pp. 170.

33. Sorkin, A. (2009). p. 231.

34. Paulson, H. (2010). p. 174.

35. Ibid, p. 175.

36. All quotes in this section are from the Minutes of the Finance and Risk

Committee, Lehman Brothers Holdings Inc., September 9, 2008.

37. Craig, S. et. al. (September 10, 2008). “Lehman faces mounting pressures.” Wall
Street Journal, p. A1. Retrieved at proquest.umi.com.
38. Sorkin, A. (2009). p. 251.

39. Valukas, A. (2010). p. 10.

40. Ibid. p. 11.

41. Sorkin, A. (2009). p. 270.

42. Ibid, p. 281.

43. Richard, C. (March 11, 2011).

44. Ibid.

45. Ibid. p. 302.

46. Sorkin, A. (2009). p. 302.

47. Paulson, H. (2010). p. 195.

48. Sorkin, A. (2009). p.312.

49. Ibid.

50. Sorkin, A. (2009). p. 318.

51. Paulson, H. (2010). p. 199.

52. Valukas, A. (2010). p. 1525.

53. Paulson, H. (2010). p. 199.

54. All quotes in this section are from the Minutes of the Board of Directors, Lehman

Brothers Holdings Inc., September 13, 2008.

55. All quotes in this section are from the Minutes of the Board of Directors, Lehman

Brothers Holdings Inc., September 13, 2008.

56. Paulson, H. (2010). p. 207.

57. Sorkin, A. (2009). p. 340.

58. Paulson, H. (2010). p. 210. Note that Sorkin quotes this figure as $33 billion (p.

340).

Lehman Brothers: Crisis in Corporate Governance 143

 59. Paulson, H. (2010). p. 210.

60. Sorkin, A. (2009). p. 348.

61. Ibid, p. 349.

62. Paulson, H. (2010). p. 211.

63. Ibid, p. 350.

64. Paulson, H. (2010). p. 213.

65. All quotes in this section are from the Minutes of the Board of Directors, Lehman

Brothers Holdings Inc., September 14, 2008.

66. Sorkin, A. (2009). p. 366.

67. Paulson, H. (2010). p. 219.

68. Sorkin, A. (2009). p. 366. Note that some obscene language from this exchange
has been deleted.
69. Minutes of the Board of Directors, Lehman Brothers Holdings Inc., September

14, 2008.

70. Ibid.

71. Ibid.

72. Ibid.

73. Liquidity of Lehman Brothers, October 7, 2008. Lehman Brothers Holdings, Inc.

Internal Reports.

74. Sorkin, A. (2009). p. 366.

75. Ibid. p. 367.

76. Ibid.

77. Minutes of the Board of Directors, Lehman Brothers Holdings Inc., September

14, 2008.

78. Sorkin, A. (2009). p. 367.

79. Ibid.

80. Ibid.

81. Ibid.

82. Ibid, p. 368.

83. Ibid.

84. Minutes of the Board of Directors, Lehman Brothers Holdings Inc., September

14, 2008. p. 5.

85. Summe, K. (Nov. 28, 2011). 64 Stan. L. Rev. Online 16.

86. Note: Boxed Assets refer to assets that have been pledged as collateral for other
securities, and may or may not be available for immediate use by Lehman
Brothers. CLO refers to Collateralized Loan Obligations, a type of security that
pools a number of loan obligations into one security.

144 Case Research Journal • Volume 32 • Issue 1 • Winter 2012