Mar. 12, 2010 (United Press International) -- Lehman Brothers resorted to misleading accounting gimmicks to hide bad investments, a report by an examiner for the now-bankrupt U.S. investment firm concluded.
The report, prepared by examiner Anton R. Valukas, concluded senior Lehman executives and the firm's accountants at Ernst & Young were aware of the accounting tricks, The New York Times reported Thursday.
The 2,200-page report found the 158-year old Lehman Brothers failed in September 2008 due to a combination of bad mortgage holdings and demands by JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C) that Lehman post collateral against loans needed to help it stay afloat, the Times said.
Valukas reported that Lehman executives employed "materially misleading" accounting gimmicks to conceal the company's distress, using reverse engineering to remove about $50 billion from its books before declaring bankruptcy.
The bankruptcy -- the largest in U.S. history -- provided a major impetus for the financial bailout of 2008, intended to address fears of a domino effect involving other big banks.
Valukas wrote in his report that former Lehman Chief Executive Richard S. Fuld Jr. certified the misleading accounts and was "at least greatly negligent," the Times said.
"Unbeknownst to the investing public, rating agencies, government regulators, and Lehman's board of directors, Lehman reverse engineered the firm's net leverage ratio for public consumption," Valukas' report concluded.
The report does not indicate whether Lehman executives violated federal securities law.
