Lehman Investigator: SEC Failed to Ask Crucial Questions

Tiernan Ray

The man of the hour is Anton Valukas, the bankruptcy investigator into Lehman Brothers’s collapse.

The public’s trust, Valukas tells the House Financial Services Committee, in the Securities & Exchange Commission’s regulation of Lehman was not fulfilled.

The SEC knew that Lehman was failing its own risk limits in 2008, but never required Lehman to address the breach of risk limits, nor to disclose the breach.

Further, the SEC did not know of Lehman’s use of Repo 105 that year because “the SEC did not ask the right questions.”

“Lehman made a conscious business decision … to double-down in their investments [particularly with respect to real estate.] They had [risk metrics] in place and they exceeded those. The SEC knew of that and allowed it as long as management was aware of the fact. The regulators did not prevent Lehman from doing what it decided to do. It turns out [Lehman’s] judgement was clearly faulty. They were clearly Lehman’s judgement. Did the regulators do anything to prevent that from taking place? No. Were they fully apprised of that? Yes.”

“What we had here was an agency that did not feel it had the authority to act or to make changes. And that was a problem.”

Read the entire article at Barrons.com

H/T Tigerhawk who writes:

Are people going to pay more or less attention to this news on account of the enforcement action against Goldman Sachs announced on Friday?

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