Regulators Warned About Lehman Before Collapse
April 12th, 2010 | by admin |Reports are confirming that the Securities and Exchange Commission and Federal Reserve officials were warned that Lehman Brothers was incorrectly calculating a key measure of its financial health months before its collapse in 2008.
The whistle blower in this case were former Merrill Lynch officials. They contacted regulators about the way Lehman measured its liquidity position for competitive reasons.
The Merrill officials said they were coming under pressure from their trading partners and investors, who feared that Merrill was less liquid than Lehman.
The accusation consisted of Lehman using questionable financing tools to bolster its balance sheet before its September 2008 collapse.
“Since we didn’t believe the Lehman numbers and thought their calculations were aggressive, we called the regulators,” says one former Merrill banker, now working for another bank.
“Lehman was telling the world that it had excess liquidity and we knew they couldn’t be better than we were,” another Merrill employee said.
When contacted, the SEC declined to comment beyond saying that the senior people at the unit that oversaw Lehman had left the regulator.