The Lehman Brothers collapse that stunned financial markets in 2008 and led to a worldwide economic meltdown from which we still have not recovered was as shocking as it was impactful. While many had warned of market’s instability, the collapse of Lehman Brothers meant the elephant in the room could no longer go unmentioned as the real-world consequences began to bear out on the economy.
In the wake of the Lehman Brothers collapse, 26,000 workers became unemployed, and much of the immediate focus in finance and by regulators was with preventing a more cataclysmic effect financially than was necessary. Far more damage from the Lehman Brothers collapse would be felt, but, at the time, minimizing the effect on the economy at large was the goal of regulators as the shock waves reverberated.
Now four years have nearly passed since the Lehman Brothers collapse shook the bedrock of the economy, and the financial calamity can be assessed from a different lens. CBS did an in-depth look at the Lehman collapse, speaking to Anton Valukas — a man tasked with investigating the case from the top down — examining the extent of the firm’s role in its own demise.
Valukas is a federal bankruptcy lawyer, appointed by the court to investigate the Lehman Brothers collapse. In a candid CBS interview, the attorney flat-out refers to practices in which Lehman engaged as a “shell game,” and, when asked about whether actions heading up to the Lehman Brothers collapse were criminal, Valukas defers and says there is a definite case for civil action, adding that there are “colorable claims that this was a fraud.”
The network refers to an accounting trick known as Repo 105, essentially moving debts back and forth between international ledgers to suggest a lower amount of borrowing and thus causing the company to appear more solvent. When asked whether Lehman execs knew that the practice could land them in hot water, Valukas says he believes so and explains why:
“Because we read the emails in which we observed the people saying that they were doing it. We interviewed the witnesses who wrote those emails, or some of those emails, and asked them why they were doing it, and they told us they were doing it for purposes of affecting the numbers.”
“There was concerns being expressed by– at high levels about whether this is appropriate, what happens if the street found out about it. So, you know, there was a concern that there’s a real question about whether we can do this, whether this was right or not.”
Do you think considering the scope of the Lehman Brothers collapse and worldwide fallout that the SEC needs to more aggressively punish companies who skirt financial law?