Legal News

Lehman Under Fire: Prosecutors Line Up On Three Fronts

By Dan Slater

While the parties have called a temporary truce in the three-front legal battle for Wachovia, Lehman Bros. is facing a three-front assault — at least — from the U.S. attorney offices in Manhattan, Brooklyn and New Jersey.

As the WSJ reports, the issues being investigated relate to a central question: Was Lehman saying publicly that its financial condition was sound while acknowledging behind the scenes that its situation was dire? Click here for WSJ reporter Susanne Craig’s story on former Lehman chief Dick Fuld’s congressional testimony yesterday.

Lehman declined to comment, but in congressional testimony yesterday, Lehman CEO Richard Fuld said the firm didn’t mislead investors. Here’s how the battle lines have been drawn:

New York’s Southern District: SDNY prosecutors are investigating whether Lehman valued its assets at artificially high levels, say two people familiar with the matter. That office has issued subpoenas to individuals that focus on what the firm told investors and other parties about its valuations for approximately $32.6 billion in commercial-real-estate holdings, according to a person familiar with the matter. As reported yesterday in the WSJ, some executives who looked at Lehman’s real estate portfolio say they believe the portfolio was being overvalued by Lehman by as much as 35%.

Manhattan prosecutors are also interested in whether Lehman improperly moved $8 billion from its London operations to New York just ahead of its bankruptcy filing, a move that has drawn criticism from creditors and accountants, according to two people familiar with the matter.

The District of New Jersey: Federal prosecutors in the Garden State prosecutors are investigating whether Lehman misled New Jersey’s pension fund when it provided information about its financial health in connection with a $6 billion stock offering in June. New Jersey invested $180 million in the offering. Its loss on the investment totals about $116 million.


New York’s Eastern District: Brooklyn prosecutors are probing whether Lehman execs misled investors by misrepresenting the firm’s condition by making upbeat comments during conference calls with analysts and investors — an issue the Law Blog looked at yesterday.

Full post as published by Law Blog - WSJ.com on October 07, 2008 (boomark / email).