Lehman Brothers used a small company called Hudson Castle to shift investments off its own books before it collapsed, The New York Times reported on Tuesday.
Hudson Castle appeared to be an independent business but it was actually controlled by Lehman for years and the investment bank owned one-quarter of the company, according to the newspaper.
Even after an exclusive agreement between Hudson Castle and Lehman ended in 2004, Lehman retained one board seat and remained the company's largest shareholder, the Times reported.
Hudson Castle borrowed money by issuing short-term IOUs to investors through separate legal entities, the newspaper said. The company then lent that money to Lehman and other financial institutions, often via repurchase agreements, according to the newspaper.
The company is the second-largest creditor in the Lehman Estate, behind JPMorgan Chase & Co
A report on Lehman's failure, prepared by a bank examiner last month, concluded that some of Lehman's accounting was materially misleading, according to The New York Times. The report, however, did not say Hudson Castle was involved in the misleading accounting, the paper said.
(Reporting by Elinor Comlay, editing by Maureen Bavdek)