Senate Banking Committee Chairman Christopher Dodd, D-Conn., has asked the Justice Department to investigate the activities of Lehman Brothers and other companies that may have engaged in similar accounting manipulations, as well as to prosecute those who broke the law.
I am deeply concerned about the facts that have come to light regarding the demise of Lehman Brothers and the accounting manipulation that contributed to it, Dodd wrote in a letter to Attorney General Eric Holder. I respectfully ask you to commission a task force to investigate the Lehman situation, as well as other companies that may have engaged in similar accounting manipulation with a view to prosecution of employees or agents who contributed to any violations of the law.
Dodd cited the report on Lehmans accounting practices written by bankruptcy examiner Anton R. Valukas (see Lehmans Accounting Sleight of Hand Was Less Than Magical). Valukas found that Lehman made extensive use of repo transactions to temporarily remove approximately $50 billion of assets from its balance sheet at the end of the first and second quarters of 2008, in an effort to deceive investors and creditors about its true financial state.
We must work tirelessly to reduce the incidence of financial fraud in order to restore trust and confidence in the financial markets, wrote Dodd. A task force investigation and taking appropriate federal actions in these matters will contribute to these goals.
The House Financial Services Committee also plans to investigate Lehmans accounting practices (see Regulators Turned Blind Eye to Lehman Accounting Fraud).
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