Remember when Lehman went bankrupt? Good times. The thing about that was that pretty much right up until the minute Lehman filed, people like Dick Fuld and Erin Callan were going around saying things like “we stand extremely well capitalized to take advantage of these new opportunities” and “[w]e have maintained our strong liquidity and capital profiles even in this difficult environment.”
Knowing what happened next, some people thought that was kind of fucked up of them. And so a team of spoilsports including among other luminaries the Northern Ireland Local Government Officers’ Superannuation Committee sued Fuld, Callan, Joe Gregory, and a bunch of enablers like Ernst & Young (Lehman’s auditors) and UBS (who underwrote a lot of Lehman structured note offerings).
Today a federal court ruled on a motion to dismiss. It’s mostly bad news for Fuld, Callan & co., as the court let the lawsuit proceed on most of the important claims, including claims that Lehman misrepresented its net leverage using “Repo 105” transactions, lied about its “strong risk management culture with regard to the setting of risk limits” by repeatedly exceeding those limits, and misrepresented its credit-risk concentration in real estate.
But some bits of the ruling should make the ex-Lehman crowd happy: Continue reading »
Apparently not. The former Lehman CEO devolved into long soliloquies about the history of the bankrupt firm, took long pauses and seemed generally delusional in his testimony in front of the House Financial Services Committee this afternoon. Here’s a recap of Fuld’s bizarreness:
The most peculiar answer: “We were risk averse,” Fuld says in response to a question about why the firm failed. He chalks the losses up to “terrible timing” on commercial real estate investments. Still, at the end, Fuld says there was “no capital hole.” “We could not convince the world about the [good] position we were in.” He also blamed naked short sellers, again.
Asked if 30 to 1 leverage seemed risk averse to him, Fuld said 30 to 1 was a misconception. (It seems as though he really believes this.) Continue reading »
Dick Fuld plans to testify that not only did the infamous “Repo 105″ transactions play no part in Lehman’s bankruptcy, but they were so immaterial that he never knew about the accounting treatment until the bankruptcy examiner unearthed them.
In his prepared testimony, a copy of which was obtained by Deal Journal, he said the press has “unfairly vilified” Lehman by claiming the Repo 105 transactions were meant to hide the firm’s toxic assets. Instead the accounting gimmick, which Fuld says was totally legal, involved highly-liquid investment grade securities, mostly Treasury bonds.
Meanwhile, several hedge funds that supposedly shorted Lehman shares before the bankruptcy have been subpoenaed by investigators. They include SAC Capital, Och-Ziff Capital Management, Greenlight Capital and Citadel Investment Group.
Full Text of Fuld’s Statement: (Courtesy of Deal Journal)
Continue reading »
