Lehman's 'Get Out of Jail Free' Card

August 19, 2012, 11:30 a.m.

Will Wall Street Ever Be Prosecuted? Since writing "Goldman: Too Big to Jail," August 12, 2012, questioning why both Justice and the SEC dropped their cases against Goldman Sachs, CBS' "60 Minutes" has asked, and in large measure answered, the same question about the Lehman Brothers case: "The Case Against Lehman Brothers," CBS 60 Minutes, August 19, 2012.



You can find the online "60 Minutes" video here, and the full transcript here.

Here are some Fair Use excerpts from that program. Steve Kroft is the interviewer, Anton Valukas is the bankruptcy court-appointed Chicago lawyer tasked with investigating what happend within Lehman, and the additional narrative is in italics.

When Lehman Brothers collapsed, 26,000 employees lost their jobs and millions of investors lost all or almost all of their money, triggering a chain reaction that produced the worst financial crisis and economic downturn in 70 years. Anton Valukas' job was to provide the bankruptcy court with accurate, reliable information that the judges could use to resolve the claims of creditors picking over Lehman's corpse. . . .

Steve Kroft: Did these quarterly reports represent to investors a fair, accurate picture of the company's financial condition?

Anton Valukas: In our opinion, they did not.

Steve Kroft: And isn't that against the law?

Anton Valukas: It certainly, in our opinion, was against civil law if you will. There were colorable claims that this was a fraud, yes.

By colorable claims Valukus means there is sufficient evidence for the Justice Department or the Securities and Exchange Commission to bring charges against top Lehman executives, including CEO Richard Fuld, for overseeing and certifying misleading financial statements, and against Lehman's accountant, Ernst and Young, for failing to challenge Lehman's numbers. . . .

Steve Kroft: How are you so sure of that? Anton Valukas: Because we read the emails in which we observed the people saying that they were doing it. . . . A jury would have to decide who's telling the truth.

But so far there has been no jury to hear the evidence. Despite Valukas' findings -- and the supporting documents and testimony to back them up -- the Securities and Exchange Commission has not brought any charges of any kind against former Lehman executives. For the past few months, we've made numerous requests to interview the SEC's head of enforcement. All of those requests have been declined.

Steve Kroft: The Securities and Exchange Commission has not brought a case.

Anton Valukas: No, they have not.

There is one plausible explanation why SEC hasn't has not gone after top Lehman executives. As it turns out, some of Lehman's most egregious accounting shenanigans took place right under the noses of government regulators.

Steve Kroft: How closely was the SEC monitoring Lehman Brothers during this time?
Anton Valukas: They were on premises. They were talking to the Lehman people daily. They officed there.

After six years of reporting on stories like this, no wonder Steve Kroft candidly concludes, in a "60 Minutes Overtime" interview (5:18 minutes in), "I think this is the last story I'll do about nobody being held accountable, because I've really sort of given up. I don't think the federal government, either the SEC or the Justice Department, are going to bring any cases against individuals. I just don't think they're going to."

This is one time when I don't really welcome the confirmation. I'd like to have been proven wrong. But Kroft's conclusions is almost identical to mine in "Goldman: Too Big to Jail."

That he and I come to these conclusions when a Democratic Administration is calling the shots is distressing. Especially since we have no alternative. If anything, the Republicans would be worse -- although it's difficult to imagine how they might go about achieving that distinction.

# # #