Why are commentators saying there will be no criminal charges flowing from the accounting shenanigans that led to the collapse of Lehman Brothers? The evidence suggests that Lehman management might have been breaking the law and acting in defiance of Sabanes Oxley.
The man at the center of all this is Matthew Lee, a 14 year Lehman veteran who was let go in late June 2008 after raising concerns with Lehman's risk management that the securities firm was temporarily moving $50 billion in assets off its balance sheet. That strategy helped mask the risks the firm was taking that eventually led to its demise.
Let's look at the whistleblower letter that Lee sent, as detailed for us in the Finance blog.
The letter says: "The Firm has tens of billions of dollars of unsubstantiated balances, which may or may not be "bad" or non-performing assets or real liabilities. In any event, the Firm's senior management may not be in a position to know whether all of these accounts are, in fact, described in a "full, fair, accurate and timely" manner, as required by the Code. I believe the Firm needs to make an additional investment in personnel and systems to adequately address this fundamental flaw.
"The Firm has tens of billions of dollar of inventory that it probably cannot buy or sell in any recognized market, at the currently recorded current market values, particularly when dealing in assets of this nature in the volume and size as the positions the Firm holds. I do not believe the manner in which the Firm values that inventory is fully realistic or reasonable, and ignores the concentration in these assets and their volume size given the current state of the market's overall liquidity.
"I do not believe the Firm has invested sufficiently in the required and reasonably necessary financial systems and personnel to cope with this increased balance sheet, specifically in light of the increased number of accounts, dollar equivalent balances and global entities, which have been created by or absorbed within the Firm as a result of the Firm's rapid growth since the Firm became a publicly traded company in 1994 … Finally, based upon my personal observations over the past years, certain senior level internal audit personnel do not have the professional expertise to properly exercise the audit functions they are entrusted to manage, all of which have become increasingly complex as the Firm has undergone rapid growth in the international marketplace."
The fundamental issue here is that under Sarbanes Oxley, the CEO and CFO are required to certify the published financial statements that must adhere to Securities and Exchange Commission standards. They have to testify to the adequacy of financial controls.
But a few months before, it filed for bankruptcy, executives had been told that their finanancial statements did not add up. Yet they did nothing. This suggests they broke the law.
no comment untill now