Examiner sees gimmicks in Lehman demise

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 who could be blamed for the firm's collapse, which deepened 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 judgement and were largely not liable for the firm's collapse.

However, he said that Lehman, which is now liquidating for the benefit of creditors, could have claims against former Lehman chief executive Dick Fuld and chief financial officers Chris O'Meara, Erin Callan and Ian Lowitt for negligence or breach of fiduciary duty.

The examiner said there was also sufficient evidence to support a possible claim that the firm's auditor, Ernst & Young, had been "negligent" and that Lehman could pursue claims against the firm for "professional malpractice."

He did not find that Lehman's directors had explicitly violated their fiduciary duty, but said that Wall Street paid a large role in causing an acute liquidity crisis at Lehman in its final days.

The examiner suggested Lehman may also be able to pursue claims against banks like JPMorgan and Citigroup for taking some $16 billion (10.6 billion pounds) in collateral out of Lehman's coffers as it struggled to stay afloat.

PLAYING GAMES

The long-awaited report contains explosive allegations about a gimmick, known as "Repo 105," that was used for the sole purpose of manipulating Lehman's books, contributing to the firm's demise.

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. Lehman used the gimmick to temporarily remove $50 billion of assets from its balance sheet in 2008, according to the report.