Report grills Lehman top brass, Ernest & Young for breach of duties

A report by the court-appointed bankruptcy examiner Anton Valukas has strongly criticised senior executives of now defunct Lehman Brothers and its auditor Ernst & Young for the lapses that led to the collapse of the investment banking giant.

Anton ValukasThe chairman of the Chicago-based Jenner & Block law firm had been nominated to serve as the court-appointed examiner in the Lehman Brothers bankruptcy in progress in federal court in Manhattan.

As examiner, Anton Valukas had the mandate to investigate wide ranging issues, including asset transfers and breaches of fiduciary duty before and after the bankruptcy filing.

The report says Lehman was insolvent for weeks before it filed for the world's largest bankruptcy in 15 September 2008, sparking a global financial meltdown (See: Lehman Brothers heads for Chapter 11 as Barclays walks away).

Lehman used an accounting mechanism called Repo-105 that artificially bolstered Lehman's balance sheet to the tune of $50 billion in order to make the bank appear healthier and maintain a favourable credit rating, Valukas said in his report that runs in to over two thousand two hundred pages.

Repo 105 allowed Lehman to sell packages of mortgages, Treasury bonds, Eurobonds, and Canadian government instruments, on a temporary basis at the end of an accounting quarter, with an obligation to buy them back a few weeks later.