This firm generated large profits during the housing boom, this place them in a vulnerable position; once a loss 3-4% of its value of it would diminish its kook value or even equity. Furthermore, Investment banks are not subjected to the same regulations applied to banks to restrict their risk-taking. The 1st sign of trouble for Lehman was In of August 2007: the firm closed Its sublime lender. BANC Mortgage, the cut 1,200 positions in 23 different locations, “and took a $25;million after-tax charge and a $27-million reduction in goodwill” (Lehman Brothers Holdings Inc.
Chapter 11 Proceedings Examiners Report). Now where the eye brows were raised was in March of 2010, a “report of Anton R. Values, the Bankruptcy Examiner, ere attention to the use of Report 105 transactions to boost the bank’s apparent financial position around the date of the year-end balance sheet” (Lehman Brothers Holdings Inc. Chapter 1 1 Proceedings Examiner’s Report). “Attorney general Andrew Common later filed charges against the banks auditors Ernst & Young in December 2010, alleging that the firm “substantially assisted… Massive accounting fraud” by approving the accounting treatment” (LATTEN, 2010). Lastly, on April 12, 2010 a story broke about the incident concerning Lehman in the New York Times, Lehman as caught using a small firm name Hudson Castle, they used It to “move a number of transactions and assets off Lineman’s books as a means of manipulating accounting numbers of Lineman’s finances and risks One Lehman executive described Hudson Castle as an “alter ego” of Lehman.
According to the story, Lehman owned one quarter of Hudson; Hudson board was controlled by Lehman, most Hudson staff members were former Lehman employees” (LATTEN, 2010). This case has clearly had some fraud issues “the surreptitious removal of tens of billions of Lars of securities from Lineman’s balance sheet to create a false Impression of Lineman’s liquidity, thereby defrauding the Investing public.
