A one-year probe into the collapse of Lehman Brothers found ??credible evidence? that top executives, including the former chief Dick Fuld, approved misleading financial statements and used an ??accounting gimmick? to flatter results.
The report by the court-appointed examiner Anton Valukas also found that there was enough evidence to claim that Ernst & Young, Lehman??s auditors, failed to ??question and challenge improper or inadequate disclosures? in the firm??s results.
According to the report, JPMorgan Chase and Citigroup might have contributed to Lehman??s slide into bankruptcy in September 2008 by demanding collateral from the struggling bank in the run-up to its failure.
The report found evidence that Mr Fuld and Christopher O??Meara, Erin Callan and Ian Lowitt, who were chief financial officers of Lehman during its last days, failed to disclose the use of an accounting device that enabled the bank to hold $50bn off its balance sheet in both the first and second quarter of 2008.
Mr Valukas alleges the use of the accounting mechanism ?? called ??Repo 105? ?? was for the sole purpose of lowering the level of leverage on Lehman??s balance sheet, thus making the bank appear healthier than it was.
The transaction was designed to maintain favourable ratings from the credit ratings agencies and maintain investors?? confidence in Lehman??s finances.
When Lehman first began engaging in such window dressing in approximately 2001, the firm could not get a US law firm to sign off on the transactions, which led Lehman to conduct these repo transactions out of its London unit, with the blessing of a UK law firm, the report said.
The report claims that the accountants at Ernst & Young ??took no steps to question or challenge the non-disclosure of the use of $50bn of temporary, off balance sheet transactions.?
