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House Panel Suggests Lehman Execs Misled

Posted on: Tuesday, 7 October 2008, 06:00 CDT

By Paul Davidson

Lehman Bros. CEO Richard Fuld on Monday blamed the company's collapse last month on short sellers that drove down the company's stock, credit agency downgrades and his own flawed but well-meaning decisions as the subprime mortgage decimated Wall Street.

But at a contentious House hearing, Fuld deflected suggestions by lawmakers that he and other executives intentionally misled investors about the financial health of the investment-banking giant even while they pocketed hundreds of millions of dollars.

"I take full responsibility for the decisions that I made and for the actions that I took based on the information that we had at the time," Fuld told the House Committee on Oversight and Government Reform. "I believe those decisions were both prudent and appropriate.

"In the end, despite all our efforts, we were overwhelmed. ... I wake up every single night thinking, 'What could I have done differently?'"

Lehman Bros. filed for bankruptcy-court protection last month after Treasury Secretary Henry Paulson refused to guarantee the sale of the company amid turmoil triggered by its investments in risky mortgage-backed securities. At about the same time, the government took control of mortgage giants Fannie Mae and Freddie Mac and agreed to an $85 billion emergency loan for insurance giant AIG. Some experts say the failure to rescue Lehman set off a panic that led to last week's $700 billion bailout of financial markets.

"Until the day they put me in the ground I will wonder" why Lehman wasn't rescued, Fuld told the panel.

But committee members repeatedly read internal company e-mails and documents they said showed Lehman executives knew of the company's mushrooming crisis even while they publicly proclaimed its balance sheet strong.

In assessing why Lehman posted record losses the previous 12 months, a June document says the firm "saw warning signs" and "did not move early/fast enough." Yet on an earnings call days later, executives described the firm's capital and liquidity position as "never stronger," said Rep. Brian Higgins, D-N.Y. Fuld said he wasn't familiar with the document.

In mid-September, just days before Lehman collapsed, it was pressed by a partner for an extra $5 billion in collateral for its trades. Yet a day later, Fuld told investors the firm was "on the right track to put these last two quarters behind us."

"People want to know if you defrauded investors by coming out and saying that," says Rep. John Mica, R-Fla.

Fuld said he "firmly believed" Lehman was digging out of its mess by reducing its debt and raising capital through the planned spinoff of its commercial real estate unit. "There was certainly no attempt to mislead anyone," he said.

Committee members also accused Fuld of reaping big payouts even as the firm careened toward bankruptcy. One document obtained by the committee shows the firm's executive compensation committee approving giving three dismissed executives more than $20 million in severance days before Lehman sought bankruptcy-court protection. Fuld said the payments were justified.

Noting that Fuld has received at least $350 million in salary and bonuses since 2000, committee Chairman Henry Waxman, D-Calif., asked, "Is that fair for a CEO of a company that's bankrupt to have made that kind of money?"

Fuld said he had 10 million shares of Lehman stock, now worthless, when the company went into bankruptcy court. (c) Copyright 2008 USA TODAY, a division of Gannett Co. Inc.

Source: USA TODAY

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