Lehman Bros.: Another Black Eye for the SEC and SOX

Megan Carpentier:

One of the major components of the post-Enron accounting reforms, and laughable so, was a provision requiring that all CEOs sign off on their company’s financial statements. It was supposed to prevent CEOs from willfully looking the other way while subordinates cooked the company books (i.e., deny them plausible deniability) and inculcate in American corporate culture a sense of responsibility. It was laughable then, and, as yesterday’s report on the book-cooking that went on at Lehman Brothers proves, it’s laughable today.

The provision was based on the assumption that when CEOs admitted they didn’t know about accounting “errors” that caused collapses and massive disruptions, that they were telling the truth and that, if they had to be personally responsible, they might look into accounting irregularities and stop mischievous underlings from ruining companies. It’s surprising now to think that Congress was that gullible, or thought the American people were.

In the case of Lehman CEO Richard Fuld, he’s been found “grossly negligent” for certifying accounting statements he made no effort to look into, just as you might think. According to Michael de la Merced and Andrew Sorkin, Lehman shifted $50 billion off its books with fraudulent accounting tricks in the months before its collapse. They’d been engaging in the transaction since 2001, and there wasn’t a thing that the post-Enron regulations did to stop it.

Relatedly, the Lehman Bros. episode is yet another triumph for the crack SEC enforcers who overlooked Madoff for so long.

Comments

[save_the_rustbelt]

So what are the odds any former Lehman executive does a single day in jail?

(If you want to rob a bank, don't buy a gun, buy a bank.)

[tomhynes]

Lehman Bros had the approval of one of the largest law firms in the world for these transactions.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article7059592.ece

"Unable to find a United States law firm that would provide it with an opinion letter permitting the true sale accounting treatment under United States law, Lehman conducted its Repo105 programme under the aegis of an opinion letter the Linklaters law firm in London.”

Lehman acted on advice from a top law firm. Move along, there is nothing to see here.

[Allan]

Okay.

SOX sucks.
the SEC enforcement sucks.

Please tell us how what we should do to ensure no more Lehmans and no more Enrons. Apparently, the regulatory process is of no help.

Maybe anyone who does this should summarily be thrown in the stocks for a couple of days, then tarred, feathered, and run out of town on a rail and, once they are out of town, drawn and quartered.

[save_the_rustbelt]

"Lehman Bros had the approval of one of the largest law firms in the world for these transactions."

So?

British lawyers signing off on US GAAP? And are we assuming lawyers are honest? Wow.