Lehman Bros. is now under investigation by three separate U.S. Attorney offices. Each of the investigations boil down to a question of whether Lehman publicly claimed its finances were fine, while privately admitting that it was in deep kimchee.
This is a typical focus of securities investigations, and the investigations are likely to hinge on statements in internal emails and files, and whether those statements conflict with powerpoints, public statements, conference calls and individual phone calls with outsiders.
The SDNY is focusing on whether Lehman inflated its asset values deceptively. The investigation has zeroed in on what investors were told about the value of its commercial real estate holdings. There have been allegations that investors were told these holdings were worth $32.6 billion, when in fact they were only worth about $21 billion, a difference of 35%.
The SDNY is also investigating whether Lehman acted improperly by moving $8 billion from its London unit to New York right before it filed for bankruptcy.
The EDNY is running a carbon-copy of its Bear Stearns investigation, focusing on whether Lehman executives gave investors and analysts optimistic reports to investors and analysts during conference calls, while privately believing that the firm’s condition was worse. The allegations are that analysts were told that no new capital needed to be raised, after Lehman had determined that it needed to raise between $3 and 5 billion in new capital, as new collateral for its clearing bank following a steep decline in Lehman’s share value. The Wall Street Journal reports that the executives had decided before the call not to raise new capital, but instead to sell assets to generate the cash. [Full disclosure: the author represents an individual in the Bear Stearns matter.]
The District of New Jersey is looking into whether Lehman gave misleading information to the New Jersey pension fund during a $6 billion stock offering earlier this year. New Jersey has lost about 65% of its investment in that offering.