The Securities and Exchange Commission has ended their probe of Lehman Brothers without making any enforcement actions. It’s only the latest in a series of investigations that have either turned up empty or resulted in what amounts to a slap on the wrist.
Lawmakers and investors have pressed the agency for more than three years to determine whether Lehman misrepresented its financial health before filing the biggest bankruptcy in U.S. history in September 2008.
Under a heading reading “Activity in Last Four Weeks,” the undated document reads, “The staff has concluded its investigation and determined that charges will likely not be recommended.” [...]
Senior SEC officials have been reluctant to formally close the matter even though investigators found a lack of evidence of wrongdoing, according to people with direct knowledge of the matter. The officials have weighed issuing a public report on their findings that would stop short of an enforcement action while highlighting the firm’s questionable conduct.
My memory of the Valukas report, put out by Anton Valukas, Lehman’s bankruptcy examiner, was that it was incredibly thorough and detailed with plenty of information that would indicate misconduct on the part of executives at Lehman. In particular, Valukas found that Lehman used a series of “Repo 105″ trades to hide their true financial situation. Here’s a good summary of them:
Those sales were known as Repo 105. Near the end of a financial quarter, Lehman’s European unit would “sell” securities to a counterparty and would use the money to pay down other short-term liabilities, so it could report quarterly leverage numbers low enough to satisfy the ratings agencies, and thus investors. A few days after the quarter end, Lehman would repay the cash, plus a hefty interest, and get its securities back [...]
This gave the illusion that Lehman was less leveraged than it actually was. Dozens of rank-and-file employees told the examiner that they were under tremendous pressure to make the Repo 105 deals, especially as Lehman’s financial position got increasingly shaky. Lehman’s own executives described the maneuver as a “gimmick” and, in an email, as “another drug we r on.”
In one quarter, Lehman hid $50 billion in assets using these Repo 105 deals. The SEC obviously didn’t find any of that actionable. But it shows the kind of financial games being played during the crisis to pretend to keep in line with regulatory guidelines while taking on more risk. And it’s hard to argue that this doesn’t count as a misrepresentation to both investors and regulators.
Unless you’re the SEC, in which case you look busy investigating for three years and then quietly drop it.




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Nothing to see here. Move along, move along or you be arrested for Resisting.
The SEC. America’s answer to tits on a boar. :-(
Too timid to release a sternly worded non-enforcement letter.
Even the Congressional Progressive Caucus could do better.
That Repo 105 is the same thing Enron did. They frequently used fraudulently created SPE’s for that purpose. I’m not saying he invented the tactic, but Andrew Fastow certainly gets credit for developing it for apparently widespread use in the financial industry.
Unconscionable, but was there ever any real doubt that whatever was found would be buried? Even when the SEC wanted to press charges back in the days of Lincoln Saving & Loan and ole Charlie Keating using the bank as his own personal piggy bank, as many as 5 Senators stepped in and stopped the SEC in its tracks.
Soooo, let me see if I have this right: A Democratic SEC and DOJ decide that after three years of investigating financial shenanigans on Wall Street that were so obviously fraudulent, even folks who couldn’t follow “the Sting” understood to be criminal, failed to find any evidence of wrongdoing.
And we’re supposed to vote for Obama because, the other asshole is from Wall Street and he would be even more evil. How exactly is Romney going to be worse when it comes to regulating Wall Street? Is he actually going to pass a law that forces us to tithe to approved investment banks, like Obama’s mandate will force us to subsidize insurance companies? Or will he just start sacrificing virgins on the trading floor?
Our only hope is a divided government. We are so truly fucked.
This is so sad and so typical. Way to ruin a beautiful morning.
When are the business classes, investors, going to start realizing that they are just prey?
Why would top SEC people jeopardize possible cushy positions on Wall Street by regulating Wall Street?
When capitalism rules, sociopathic behavior is rewarded.
So bought, our government is just so bought
Steve, you are absolutely 100% right. Some people, this whole thing is elusive. But you’ve deciphered it and boiled it down perfectly!!!!
Oh, re: last sentence. Yes, we are.
OB, you’re pretty smart and analytical too.
I wonder, did they deputize Steve Wonder and send him over to head the investigation???
And, regrettably well out of OUR price range.
I know, carguy, the only thing we, the (little) people are allowed to have any say over is the bright and shiny distraction issues of the social/cultural wars. Like abortion, contraception (or women’s rights), Gay Rights (marriage equality), or how much we need to limit sex on TV compared to what the appropriate level of violence should be.
There is no conversation on the real issues that effect our pocketbooks, unless it’s both sides of the uni-party screaming “lower taxes”. And the folks who actually go too far in pointing this out (Edwards, Spitzer, Kucinich, Grayson) are marginalized, sometimes permanently, regardless if they were actually sincere or not in their anti-corporate populism.
Where Obama honest, instead of a duplicitous neo-lib piece of shit that makes George W. Bush look like a cherry-tree-chopping young Washington by comparison, his campaign slogan in 2008 would have been:
“Yes, We Can… Screw You Over”, because they have, are, and will continue to do so.
You mean John Edwards, who cheated on his cancer-stricken wife? It’s hard to like him at all, at this time.
Good on the other points, though.
Glad to see you back here.
It’s acceptable to point out that one of those Senators was John “Crash the Planes” McCain.
Hey, people, I think you must have forgotten to remember that President Obama is the only one standing between you, with your uncivil pitchforks, and the bankers. So you might want to factor that in to your vote…
Damnit! Will you people stop looking back?! Just face forward and everything will be fine — because I say so.
Signed: The Great Deceiver, Barack Obama.