Fraud Is In the Air

Eddie Braverman's picture
Rank: The Pro | 21,117

Can you smell it? As bankruptcy hearings go, Lehman's is turning into a doozy. I think we're starting to see why the banks are so opposed to disclosure.

First came the accusation that Barclays induced then-Lehman employees to understate the value of the firm's assets by $5 billion during the negotiations by offering them plum positions at the new bank. Now it looks like Lehman has grounds to file suit against Goldman Sachs, Barclays, and the CME for perpetrating a fraudulent transfer on a truly massive scale. The CME, for its part, did everything in its power to keep this from coming to light:

Comments (6)

Apr 15, 2010

Can someone explain this a little bit more? GS, Barclays, and DRW won an auction for Lehman's derivatives (presumably meaning they bid the highest), but somehow Lehman has grounds to sue? I'm not following the logic here.

Apr 15, 2010

If the basis of their winning bids was a fraudulent undervaluing of the firm's assets by Lehman insiders who had been promised positions at the other firm/s, then Lehman shareholders (and bondholders, obviously) have grounds for suit. I'm not saying this is what happened, but that's the scenario that makes the most sense to me based on the facts that have been revealed thus far.

Apr 15, 2010

Don't all firms that can potentially bid on those derivative positions have the same information? If GS and Barclays are the only ones that have the "undervalued" information on those assets, they shouldn't have been able to win the auction because everyone else would have been bidding using the "correct" price. Highest bid wins right?

I see your point on why they could sue just for the fact that Barclays bribed Lehman employees to lower the asset values, maybe I'm misinterpreting the video, but I thought that the report was saying that Lehman has a right to sue because GS/Barclays/DRW wound up winning the auction and profited from it.

Say hypothetically,that BoA had won the auction for those assets and capitalized on the undervaluations. Would Lehman have grounds to sue them?

Apr 15, 2010

Based on the same assumption (that Lehman insiders fraudulently undervalued the assets), I would have to assume so. However, it would be more likely that, even if another unheard of bank won under those circumstances, that ultimate financial responsibility would rest with Barclays because they took over the bank. This is all hypothetical though, because no one is suing anyone because there's no hope of recovery.

If there was in fact collusion between Barclays and Goldman and whomever else, though, they'd never allow an outside firm to win the auction, because they alone would be privy to the true value of the assets and no outsider would bid higher than the stated value. At least that's how I look at it.

Apr 15, 2010
Edmundo Braverman:

If there was in fact collusion between Barclays and Goldman and whomever else, though, they'd never allow an outside firm to win the auction, because they alone would be privy to the true value of the assets and no outsider would bid higher than the stated value. At least that's how I look at it.

I think that was the big missing step from my logic. Thanks for your help!

Apr 15, 2010
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