Published On: Tue, May 19th, 2020

Global recession bombshell: Why Lehman Brothers ‘got away with’ financial disaster | City & Business | Finance


Workers all around the world are questioning how the global economy will ever recover from the impact of coronavirus and its related lockdown. Public fury increased over the weekend, when at least 20 UK billionaires were found to have furloughed staff through the taxpayer-funded scheme, according to the Sunday Times Rich List last weekend. As financial experts warn that the impending economic downturn could be the worst crisis since the Great Depression, taxpayers are wondering why banks have not returned the favour of 2008, when public money was used to bail them out.

Furthermore, despite the financial services firm Lehman Brothers triggering the crash, the company executives were never punished for the chaos that ensued.

In a BBC documentary from October called ‘Inside Lehman Brothers: The Whistleblowers’, the company’s former employees explained how they felt obliged to reveal the irregularities taking place behind closed down.

Sylvia Vega-Sutfin worked for the subsidiary of Lehman Brothers, BNC Mortgage, which was lending close to $50billion per month by the end of 2006.

She explained that the bank would falsify information about homeowners, so it could sell the loans to investors at a higher price.

Richard Fuld, former chair of Lehman Brothers

Richard Fuld, former chair of Lehman Brothers (Image: Getty)

Sylvia Vega-Sutfin worked for the subsidiary of the Lehman Brothers, BNC Mortgage

Sylvia Vega-Sutfin worked for the subsidiary of the Lehman Brothers, BNC Mortgage (Image: BBC)

When she went public with the information, she claimed her employer tried to tarnish her reputation and threaten her – she left the company in 2005 and has not worked since.

The former account executive said: “There’s no money that would compensate me, ever.

“What would compensate me, what would make me feel good, is if the people from the top were punished.

“And that’s never going to happen.”

The New York Times published an article in 2013 explaining how the team at Lehman Brothers were able to get away without punishment.

READ MORE: How Duncan Bannatyne turned one ice cream van into £280 million

IMF prediction of economic recovery after coronavirus

IMF prediction of economic recovery after coronavirus (Image: Express.co.uk)

Speaking to an independent agency of the US government, the Securities and Exchange Commissions (SEC) the chairwoman Mary L Schapiro explained that the executives managed to “escape without a single civil charge”.

The article explained: “SEC officials reviewed more than 15 million Lehman documents and interviewed some three dozen witnesses.

“The decision not to bring charges, the officials said, came despite early hope among investigators whose careers likely would have benefitted from bringing such a prominent case.”

It added: “When the evidence is murky, prosecutors sometimes hesitate to charge top executives, who have the money to fight rather than settle.”

Richard S Fuld Jr was the chief executive who oversaw Lehman Brothers for 14 years until it collapsed but he, too, did not face criminal charges.

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The collapse of the Lehman Brothers in 2008 was blamed for triggering a global financial crisis

The collapse of the Lehman Brothers in 2008 was blamed for triggering a global financial crisis (Image: Getty)

Fuld and Weil, Gotshal & Manges Business and Restructuring Partner Harvey Miller at the Financial crisis inquiry of 2010

Fuld and Weil, Gotshal & Manges Business and Restructuring Partner Harvey Miller at the Financial crisis inquiry of 2010 (Image: Getty)

The article continued: “By early 2011, Mr Canellos’ [from the SEC] team had run out of leads.

“It ruled out suing Lehman itself, because the firm was in bankruptcy.

“The team also decided not to sue Mr Fuld for failing to supervise the firm’s risk-taking, believing that the SEC did not have the authority to do so.”

The investigators subsequently focused on a move called Repo 105, which the bank had been using, which the key examiner from the investigation dubbed “balance sheet manipulation”.

The article read: “The practice allowed Lehman to transfer securities off its balance sheet, presenting them as collateral to an outside lender which in turn offered Lehman a short-term loan.

“Lehman treated the transactions as sales rather than as debt, which meant the firm looked as if it had less debt than it actually did.”

However, Mr Fuld said he had never heard of Repo 105 which undermined the investigation.

The SEC team also realised that the firm’s “leverage ratio” was declining anyway, regardless of Repo 105.

The SEC realised no case could be brought if the evidence was “lacking” and subsequently no executives from Lehman Brothers have ever been charged.



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