Legal News

Do Criminal Charges Await Lehman Crew?

By Ashby Jones

So now that we’ve digested the, uh, entire 2,200 page report by Lehman Brothers, where, exactly are we? Are we going to see former chief executive Dick Fuld (pictured) in cuffs? Former CFO Erin Callan working the chain gang?

It’s possible, but far from a slam dunk, legal experts told us today. Click here for our story on the situation.

The backstory, again (click here for our link from earlier Friday on the news): The 2,200-page report contains numerous accusations that Lehman executives repeatedly overlooked accounting irregularities and manipulated Lehman’s balance sheet.

The report also includes evidence that suggests senior executives, including Fuld, knew that Lehman was taking such actions. (In response to the report, Fuld’s lawyer, Allen & Overy’s Patricia Hynes, said, “Mr. Fuld did not know what those transactions were-he didn’t structure or negotiate them, nor was he aware of their accounting treatment.”)

So are criminal charges forthcoming? Federal prosecutors in Brooklyn and Manhattan are investigating the situation. But experts say securities-fraud convictions against executives in these situations can be difficult, largely because the law requires prosecutors to prove criminal intent.

Convictions do happen, of course (See, e.g., Skilling, Lay, Ebbers and a father-son team named Rigas). But to bring a successful criminal case, says Samuel Buell, a former federal prosecutor and law professor at WashU, there’s a little thing called intent. That is, prosecutors generally have to show that an executive both knew about irregularities and intended to mislead investors.

Buell says that senior executives criminally charged under the federal securities laws often bring up two defenses that can be hard for prosecutors to combat: that the key decisions were made “many floors beneath them,” and that they relied on the advice of professional advisers. “The executives say ‘I’m not a lawyer, I’m not an accountant,’ ” Buell says. “It can be hard to prove intent when this defense gets used.”

Okay, fine. But won’t prosecutors feel overwhelming pressure to file charges? One former federal prosecutor whose firm is involved in the Lehman case says it’s possible. “Unfortunately, it happens,” he says. “Prosecutors aren’t immune from that kind of pressure.”

Dan Richman, a law professor at Columbia, has higher hopes for the offices presiding over the Lehman case. “I’d like to think the professionalism of the offices looking at the case would be immune from such pressures.”

Photo: AP

Full post as published by Law Blog - WSJ.com on March 12, 2010 (boomark / email).