Lehman Brothers CEO Arrested For Accounting Fraud

Feb 04, 2013

dick-fuld-006Former Lehman Brothers CEO Dick Fuld and three other Lehman executives were arrested today for crimes related to the collapse of the venerable investment bank in September 2008.

The four bankers were apprehended at John F. Kennedy International Airport in New York where they were attempting to flee the country to escape imminent federal charges of filing false financial statements.

According to multiple sources Ferdinand Pecora - the U.S. District Attorney for the Southern District of New York - obtained a grand jury indictment last week against Fuld, former CFO Erin Callen and two lower level accounting managers.

The indictment alleged that the four knowingly deceived investors and regulators over Lehman's use of its infamous "Repo 105" accounting techniques, concealing the firm's true financial condition until it was too late.

Although this Repo 105 accounting fraud had been widely reported in the media, no arrests had been made until now. Some experts have argued that the transactions were deceitful, but not unlawful. However, according to the grand jury report clear evidence exists on violations of the Sarbanes-Oxley Act and other applicable laws.

The Greediest Guys in the Room

Word of the secret indictment was illegally leaked to Fuld and his associates over the weekend. Fearing a public trail and imprisonment, the group hatched a plan to escape to Russia - which does not have a extradition treaty with the United States.

The FBI arrested the Lehman Four on a scheduled Aeroflot flight, just minutes before it was set to take off for Moscow - where the still-wealthy Fuld and his associates thought they had arranged to live comfortably in exile.

In reality, however, the trip to Russia was part of an elaborate effort by authorities to locate Fuld and his group, who had disappeared from FBI surveillance and adopted a false identities.

Federal officials posing as corrupt Swiss real estate agents helped Fuld find and purchase a safe-house in Moscow, and then used the his financial information to trace his movements.

As one proud agent explains:

"Basically we sold him a fake house, and then lured him to it."

De Maxima Non Curat Lex

Lehman Brothers was once one of the world's largest financial firms. It collapsed spectacularly in the fall of 2008 after a series of risky bets it made on the American housing market soured and left it with insufficient capital.

Although the problems at Lehman were not vastly unlike those at other investment banks, its use of aggressive accounting methods to hide its losses were perhaps the most egregious.

Following the arrests Gregor MacGregor, an attorney for Fuld, defended his client in a written statement that lambasted the prosecutor for daring to bring such charges:

"Although Mr. Fuld recklessly bankrupted his company and brought the world to the brink of global financial collapse, we believe that technically none of that was actually illegal."

"This prosecution is nothing but a politically motivated witch hunt designed to mask the failures of our leaders in Washington. Who can blame Mr. Fuld for wanting to escape this Kangaroo Court and go someplace where the rule of law is respected and revered?"

Criticism also came from powerful banking lobby groups in Washington D.C. Tim Pawlenty, a former Minnesota governor and chairman of the Financial Services Roundtable expressed his outrage at the move:

"I don't mind being tough on crime. But I would prefer if the government stuck to prosecuting black and Latino people for drug offenses. Going after Wall Street kingpins, who heavily donate to political campaigns, seems ungrateful and in poor taste."

However, Pecora - who is expected to unveil the full indictment Friday - says his investigation is vital to American democracy:

"If we don't vigorously prosecute those criminally responsible for the greatest financial crisis since the Great Depression, how can expect to be taken seriously as a nation?"

  • BryanCooper

    Fuld! don’t say nuttin til youse mouthpiece can spring ya! Dem Feds got nuttin on ya!

  • No Thanks

    I believe that you are the only person reporting this….doesn’t seem very reliable….

  • RadicalLarry

    Kill them all, Men can only be free when the last banker is strangled with the intestines of the last politician.