Richard Fuld, former CEO of Lehman Brothers, lifted his bowed head, looked squarely at congressional committee members on Tuesday and acknowledged that people were hurt in the collapse of the former Wall Street giant.

I have to live with that, he said, slumped in a chair at another Capitol Hill hearing to answer questions about the largest bankruptcy in U.S. history, with lawmakers focused on a controversial accounting practice that Lehman used.

As the Senate moved closer to enacting historic financial reforms, Fuld said he was unaware Lehman was using the accounting practice until a year after Lehman's collapse.

Known as The Gorilla inside Lehman in its heyday, the heavy-browed financier said: I have absolutely no recollection whatsoever of hearing anything about 'Repo 105 transactions' while I was CEO of Lehman, referring to the accounting issue.

Fuld's October 2008 appearance before lawmakers was marked by protesters with signs reading Shame, and Cap Greed, just weeks after Lehman imploded, paralyzing capital markets and unleashing a worldwide push for tighter financial rules.

The former CEO's testimony came after lawmakers at the hearing decried the 2007-09 financial crisis and urged a sweeping regulatory overhaul after U.S. government fraud charges against Goldman Sachs on Friday.

Failure is inevitable in financial systems, U.S. Treasury Secretary Timothy Geithner told the House Financial Services Committee.

The challenge for governments is to devise a system where failures of private firms cannot cause catastrophic damage to the economy, he said.

As the House panel examined the 2008 Lehman bankruptcy, the Senate was moving toward a pivotal vote on the most substantive overhaul of financial regulations since the Great Depression.

President Barack Obama, who has made financial reform a top priority since winning a major victory on healthcare reform, supports a bill approved by a Senate committee last month.

It is now headed toward the Senate floor for a decision, but faces solid opposition from Republicans as well as banking industry lobbyists.

Democrats, in control of 59 votes in the 100-member Senate, need the support of just one Republican to overcome procedural hurdles likely to be thrown up to block the bill. One Democratic official said the Senate now looked unlikely to take up the bill before next week, later than previously hoped.


The U.S. Securities and Exchange Commission brought fraud charges against Goldman Sachs linked to its structuring and marketing of a subprime mortgage investment. Goldman emerged from the crisis as Wall Street's top firm.

Major bank stocks ended higher on the New York Stock Exchange, except for Goldman, which was down 2 percent at $159.98.

With Democrats betting that the Goldman case would boost deep and persistent public anger against the financial industry and improve chances of their bill's passage, Goldman on Tuesday reported that its first-quarter profits nearly doubled.

SEC Chairman Mary Schapiro told reporters that the case against Goldman was absolutely not politically motivated.

The House approved a reform bill in December that embraced many of the reforms proposed by Obama in mid-2009. But the Senate has yet to act, with the result that regulation has changed little since Lehman fell apart in late 2008.

Fuld told the House committee that he only learned of Lehman's use of a controversial accounting technique a year after the investment bank filed for bankruptcy.

A court-appointed examiner reported in March that Lehman used a technique known as Repo 105 to temporarily remove some assets from its books, obscuring its full financial picture. Critics say the technique can be abused for window dressing financial results at the end of a quarter.

Geithner was joined at the House committee hearing by Federal Reserve Chairman Ben Bernanke and the SEC's Schapiro.

Schapiro said the investor protection agency was considering whether new rules are needed to prevent the masking of a company's debt at the end of the quarter.

Former SEC Chairman Christopher Cox told the committee, in prepared remarks, that the Lehman examiner's report may provide the basis for an SEC enforcement action.

(Additional reporting by Andy Sullivan, Karey Wutkowski, Rachelle Younglai, Kim Dixon and Clare Baldwin, with Steve Eder in New York; Editing by Kenneth Barry)