Thomas Russo knows a thing or two about shepherding struggling financial companies through chaotic times. The former top lawyer for Lehman Brothers Holdings Inc. took on the unenviable task of becoming general counsel for embattled American International Group Inc. in February.
Now Russo’s old life as head lawyer of the collapsed Lehman Brothers is in the news again with the release of a 2,200-page bankruptcy examiners’ report. The New York Times called it the “Wall Street equivalent of a coroner’s report” because it lays out in minute detail how Lehman Brothers used accounting gimmicks to hide the bad investments that led to its demise.
Russo and Lehman’s legal department weren't blamed for the accounting chicanery, according to the report. But it shows that they were involved in negotiations with other financial institutions as the bank fought for its survival.
Russo relayed information between bank officials who were struggling in vain to obtain loans that would prop up the struggling 158-year-old company. Meanwhile, the report said another in-house lawyer drafted agreements with clearing banks that attempted to limit the financial impact of their demands for collateral. Russo declined to comment for this story.
And even as Lehman’s financial situation continued to unravel, Russo wanted to delay planning and preparing for bankruptcy, the report said. That’s because he believed as late as mid-September 2008 that the Federal Reserve would rescue the company.
That never happened. Lehman Brothers filed the biggest bankruptcy in U.S. history that same month. And the report laid much of the blame on devastating losses in mortgage-backed securities, along with demands for collateral against much-needed loans by Citigroup Inc. and JPMorgan Chase & Co.
The report by examiner Anton R. Valukas also cited the “materially misleading” accounting maneuvers that Lehman Brothers used to hide its precarious financial situation. The report said that one such move involved including collateral paid to clearing banks such as JPMorgan as part of its liquidity pool, so that the bank appeared to have more money on hand than it actually did.
via Law.com – Lehman Report Shows Ex-GC’s Fight to the Bitter End.
