Examiner sees gimmicks in Lehman demise

The bankruptcy judge overseeing the case, James Peck, said the report "reads like a best-seller."

The examiner said Lehman could be found to have been insolvent as far back as September 2, 2008, even though it did not file for bankruptcy until September 15.

"Lehman's small margin of equity relative to assets meant it did not need much loss in asset value to render it insolvent," the examiner wrote, adding that Lehman had an unreasonably small amount of capital to be operating its business beginning in the third quarter of 2008.

During that period, Lehman entered into new and more onerous collateral agreements with rival Wall Street banks -- agreements that the examiner suggested could be challenged because Lehman was technically insolvent.

Indeed, the report details the increasingly aggressive collateral calls that JP Morgan made in the days before Lehman's September 15, 2008, bankruptcy filing.

On September 11, for example, J.P. Morgan executives met and decided that the collateral Lehman had posted "was not worth nearly what Lehman claimed it was worth," the report says. The next day, J.P. Morgan asked for an additional $5 billion in collateral.

About that time, J.P. Morgan discovered that one of the securities posted by Lehman, an asset-backed security known as Fenway, was "worth practically nothing as collateral."

In the report, the examiner raised questions about whether JPMorgan had acted "in good faith" but also detailed an interview in which Dimon said he told Fuld in every conversation "that he did not want to harm Lehman."

The examiner found Lehman could have potential claims against JPMorgan, which is still holding about $6.9 billion of Lehman's collateral, and Citi in connection with collateral demands and guaranty agreements in Lehman's final days that hurt its liquidity.

"Lehman's available liquidity is central to the question of why Lehman failed," Valukas wrote in the report.