Did Lehman Bros. Lie to Investors?

Boosterism is one thing. Fudging the books is another. According to the, two Wall Street execs concluded that the "firm's real-estate valuations are roughly 35 percent higher than they should be."
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by Eric Umansky, ProPublica

We¹ve written before -- href="http://www.propublica.org/article/the-fbi-is-on-the-case-ok-924/">some
what skeptically -- about the FBI's apparent investigations into Lehman Brothers, AIG and other once-high-flying firms. Well, it turns out the Feds might just be onto something with Lehman Bros.

According to the Wall Street Journal, in the run-up to its collapse, Lehman Bros "went to great lengths to conceal
how fast it was careening toward the financial precipice
(Unfortunately, the story is href="http://online.wsj.com/article/SB122324937648006103-email.html">behind
a pay-wall.)

Lehman's chief executive, Richard Fuld Jr., will be testifying this morning at a congressional hearing, and there's no shortage of potentially juicy lines of inquiry.

In the weeks leading up to Lehman declaring bankruptcy, the firm's execs repeatedly assured investors that the company was in fine shape. "Our balance sheet is better than ever," an exec in Lehman's European division, Christian Lawless, recalls telling clients. (Yes, that is his real last

On Sept. 10, Lehman hosted a conference call for investors. The night before, top execs had discussed the need to raise $3 billion to $5 billion.
But on the call, says the Journal, "Lehman executives didn't say anything about needing to raise capital." Lehman's chief financial officer asserted on call, "Our capital position at the moment is strong."

Of course, it's understandable that Lehman's brass was trying to shore up confidence in the company. "It's a dance all these executives do when your company is built on trust and you can't show weakness," Peter
, a former SEC lawyer and DOJ prosecutor, told the Journal. At the same time, Henning said, similar statements were used by criminal prosecutors against top execs at Enron.

Boosterism is one thing. Fudging the books is another. According to the Journal, two Wall Street execs "who reviewed Lehman real-estate documents" concluded that the "firm's real-estate valuations are roughly 35 percent higher than they should be."

A "document reviewed by the Journal," Lehman had valued some of its real estate investments at near 98 cents on the dollar, even though the firm listed similar U.S. assets as being worth near half of that. As the Journal notes, "While the European market for such securities has been slightly better than the U.S. market, it has also been hammered by the credit crisis."

In his href="http://s3.amazonaws.com/propublica/assets/docs/fuld_statement_081006.p
df">prepared statement (PDF) for the hearing today, former Lehman CEO Fuld blamed a "litany of destabilizing factors" for the firm's downfall. "In the end, despite all our efforts, we were overwhelmed." We might just be getting a better picture of exactly what those factors were.

Cross-posted at ProPublica, America's largest investigative newsroom.

Eric Umansky is a senior writer for ProPublica.

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