It is difficult to be shocked about new revelations stemming from the financial crisis, but today’s DealBook column by Andrew Ross Sorkin was a real revelation. S.E.C. examiners, working during the watch of Christopher Cox as S.E.C. commissioner, apparently saw nothing wrong with Repo 105. Read this article for more details.
Attempting to understand the sequence of events that led to the downfall of Lehman Brothers is normally a mind numbing process, but occasionally an obvious outrage is discovered such as Lehman’s use of “Repo 105” transactions. While we have not perused the 2,200 page bankruptcy examiner’s report, enough information has been reported to draw some conclusions. While Lehman’s top management deserves much criticism and blame, the firm’s auditors were derelict in their responsibilities as well. Whether Ernst & Young is legally culpable is an open question. However, it is obvious that the firm acted as an “enabler” to Lehman’s management when it came to the use of Repo 105. Read this article for more details.
In a pattern that would be amusing if it was not so disturbing, we are again witnessing the spectacle of lawyers for a disgraced CEO who claim that their client was “unaware” of key risks that led to the downfall of their firm. The Lehman Brothers bankruptcy examiners report has been widely covered in the business media over the past few days and, at a minimum, paints a picture of shocking incompetence and an intent to mislead among Lehman’s senior management team. It is the type of scenario in which a former CEO’s only defense appears to rest on claims that he was incompetent rather than criminally negligent. Read this article for more details.