Lehman Brothers Holdings Inc used accounting gimmicks and had been insolvent for weeks before it filed for bankruptcy in September 2008, but there was not extensive wrongdoing, a court-appointed examiner has found.

In a 2,200-page report made public on Thursday, examiner Anton Valukas, chairman of law firm Jenner & Block, reported the results of his more than year-long investigation into the firm's collapse, which deepened the global financial crisis.

The examiner said that while some of Lehman's management's decisions can be questioned in retrospect and the firm's valuation procedures for its assets may have been wanting, those responsible for the firm had used their business judgment and were largely not liable for the firm's collapse.

He said, however, that the bankruptcy estate, which is now being liquidated for the benefit of Lehman's creditors, could have claims against former Lehman chief executive Dick Fuld and chief financial officers Chris O'Meara, Erin Callan and Ian Lowitt.

The examiner said there was also sufficient evidence to support a possible claim that the firm's auditor, Ernst & Young , had been negligent and that Lehman could pursue claims against the firm for professional malpractice.

He did not find that Lehman's directors had explicitly violated their fiduciary duty. However, he also said some top executives may have not lived up to professional standards.

He also said actions by rival banks at JPMorgan Citigroup and that restricted Lehman's liquidity in its final days may have worsened the bank's downward spiral.


The long-awaited report contains explosive allegations about a gimmick, known as Repo 105, that was used for the sole purpose of manipulating Lehman's books, contributing to the firm's demise.

The examiner concluded that the gimmick, which dated back to 2001 and was used without telling investors or regulators, gave the appearance that Lehman was reducing its overall leverage levels in 2008 when in reality it was not.

An attorney for Lehman's former chief executive said in a statement on Thursday that Fuld did not know what those transactions were.

He didn't structure them or negotiate them, nor was he aware of their accounting treatment, attorney Patricia Hynes said, noting that the firm's outside auditor and legal counsel had not raised any concerns about the transactions with him.

The examiner also said a claim could be based on Ernst & Young's failure to abide by professional standards relating to communications with Lehman's audit committee, Claims could also be based on shortcomings in Ernst & Young's probe into a whistleblower claim and reviews of Lehman's public filings.

A spokesman for Ernst & Young did not comment, saying the firm had not yet had time to review the findings.

The report was allowed to be unsealed by U.S. Bankruptcy Judge James Peck earlier on Thursday.


The examiner said Lehman could be found to have been insolvent as far back as September 2, 2008, even though it did not file for bankruptcy until September 15.

The report, which details the harrowing days of September 2008 before Lehman filed the largest U.S. bankruptcy in history, also revealed the roles that the firm's Wall Street rivals played in its collapse.

The examiner said J.P. Morgan made mounting and increasingly aggressive calls for collateral in the days before Lehman's September 15, 2008, bankruptcy filing.

On September 11, J.P. Morgan executives met and decided that the collateral Lehman had posted was not worth nearly what Lehman claimed it was worth, the report says.

The next day, J.P. Morgan asked for an additional $5 billion in collateral.

About that time, J.P.Morgan discovered that one of the securities posted by Lehman, an asset-backed security known as Fenway, was worth practically nothing as collateral.

JPMorgan declined to comment and a Citi representative had no immediate comment.

In the report, the examiner detailed an interview with JPMorgan CEO Jamie Dimon where Dimon said he told Fuld in every conversation that he did not want to harm Lehman.

The examiner found Lehman could have potential claims against JPMorgan Chase & Co and Citibank in connection with demands for collateral and certain changes made to guaranty agreements in Lehman's final days that hurt its liquidity.

Lehman's available liquidity is central to the question of why Lehman failed, Valukas wrote in the report.

The report described how Bank of America executives backed away from a deal to buy Lehman that lacked U.S. government aid.

Bank of America's due diligence team concluded Lehman's commercial real estate valuations were too high, and identified $65 billion to $67 billion in assets the bank would not have wanted at any price, the examiner's report states.

And Barclays Plc may have received some assets improperly when it ultimately took control of Lehman's core U.S. brokerage in a hurried bankruptcy court transaction, Valukas said in the report.

Barclays declined to comment and Bank of America representatives were not immediately available.

Under U.S. bankruptcy law, an examiner can be appointed in any bankruptcy case if someone requests it and the court finds the company's debts exceed $5 million.

Lehman, which had over $600 billion in assets when it filed for bankruptcy, is planning to file a reorganization plan later this month that will explain how the firm intends to complete its bankruptcy and the examiner's report has been viewed as integral to that process.

(Reporting by Emily Chasan, Phil Wahba, Dan Wilchins, Joe Rauch, Matthew Goldstein, Jeffrey Cane, Clare Baldwin, Tom Hals, Jonathan Stempel & Steve Eder; Editing by Gary Hill)