Senior execs fingered in scathing Lehman report

Who brought down Lehman Brothers? The question has hung over the financial crisis allowing conspiracy theories to fester. Was it a stitch-up between Goldman bankers and Treasury officials or a mysterious multi-billion wire-transfer to Israel in the days preceding the September 2008 events?

Now bancruptcy officials in New York are offering a new explanation: JPMorgan Chase and Citigroup helped to cause the collapse by demanding more collateral and changing guarantee agreements while senior Lehman executives misled the board over the firm's deteriorating condition.

Anton Valukas, the bankruptcy examiner, wrote in a 2,200-page report that "Lehman's available liquidity is central to the question of why Lehman failed".

The report also charges that CEO Dick Fuld and other senior executives certified misleading statements about the bank's finances that included utilising a mysterious accounting technique known as "repo 105" that boosted Lehman's balance sheet by $50bn.

Lehman chose to "disregard or overrule the firm's risk controls on a regular basis,'' even as the credit and real-estate markets were showing signs of strain.

Four months before the collapse, a Lehman vice-president alerted management to potential accounting irregularities but the alert was taken no further.

According to Valukas, Lehman's top executives, including Fuld, were aware of accounting chicanery and failed to disclose it. Fuld was "at least grossly negligent" in the collapse.

Vakukas's allegations increase the possibility that criminal charges could be brought. In a clear hint at legal action to come, the examiner said Lehman executives engaged in "actionable balance sheet manipulation," as they used "accounting gimmicks" to move assets off the balance sheet without disclosing them.

"To buy itself more time, to maintain that critical confidence, Lehman painted a misleading picture of its financial condition," Valukas wrote.

Through a spokesman, 63-year-old Fuld denies any knowledge of the potentially actionable transactions.

Valukas spent a year and $38 million producing the report. He interviewed more than 100 people including US Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke, scrutinised more than 10 million documents and 20 million pages of emails from Lehman.

He found that Barclays, which bought Lehman's brokerage for $1.54 billion, had wrongly received a small quantity of assets - probably valued at no more than $10 million - in the transaction.

In the final hours, Fuld desperately sought a deal with Barclays but UK regulators refused to exempt the bank from seeking shareholder approval. When Chancellor Alistair Darling refused to intervene, Fuld called US Treasury secretary Henry Paulson to contact prime minister Gordon Brown. Once these avenues were denied, Lehman soon collapsed. ·