Dick Fuld plans to testify that not only did the infamous “Repo 105″ transactions play no part in Lehman’s bankruptcy, but they were so immaterial that he never knew about the accounting treatment until the bankruptcy examiner unearthed them.

In his prepared testimony, a copy of which was obtained by Deal Journal, he said the press has “unfairly vilified” Lehman by claiming the Repo 105 transactions were meant to hide the firm’s toxic assets. Instead the accounting gimmick, which Fuld says was totally legal, involved highly-liquid investment grade securities, mostly Treasury bonds.

Meanwhile, several hedge funds that supposedly shorted Lehman shares before the bankruptcy have been subpoenaed by investigators. They include SAC Capital, Och-Ziff Capital Management, Greenlight Capital and Citadel Investment Group.

Full Text of Fuld’s Statement: (Courtesy of Deal Journal)

Mr. Chairman, Ranking Member Bachus, and Members of the House Committee on Financial Services, you have invited me here today to address a number of public policy issues raised by the Lehman Brothers bankruptcy report filed by the Examiner.

Since September of 2008, I have given much thought to the financial crisis and the perfect storm of events that forced Lehman into bankruptcy. Everyone’s focus is now on how to prevent another crisis. The key is how regulation and governance should be deployed going forward to better protect the financial markets and the entire system.

The idea of a “super regulator” that monitors the financial markets for systemic risk, I believe, is a good one. To be successful in today’s challenging environment, this new regulator should have actual experience and a true understanding of the business of financial institutions, the capital markets and risk management and must be given the resources sufficient to accomplish its important mission.

My view is that the new regulator also should have access, on a real-time basis, to all information and data regarding transactions, assets and liabilities, as well as current and future commitments. In addition, we should put in place established and effective methods of communication between the regulator and the firms being regulated, all of whom should be guided by clear standards for capital requirements, liquidity and other risk management metrics. The job of the new regulator can only be done, in my opinion, with the creation and utilization of a master mark-to-market capability that determines valuations and capital haircuts on all assets, commitments, loans and structures. In short, to have a fair and orderly market, I believe we need a single set of transparent rules for all of the participants.

You have asked specifically about the role of the SEC and the Federal Reserve Bank of New York. Beginning in March of 2008, the SEC and the Fed conducted regular, at times daily, oversight of Lehman. SEC and Fed officials were physically present in our offices monitoring our daily activities. The SEC and the Fed saw what we saw, in real time, as they reviewed our liquidity, funding, capital, risk management and mark-to-market processes. The SEC and the Fed were privy to everything as it was happening. I am not aware that any data was ever withheld from them, or that either of them ever asked for any information that
was not promptly provided. After an extended investigation into Lehman’s bankruptcy, the Examiner recently published a lengthy report stating his views.

Despite popular and press misconceptions about Lehman’s valuations of mortgage and real estate assets, liquidity, and risk management, the Examiner found no breach of duty by anyone at Lehman with respect to any of these.

Speaking of asset valuations, the world still is being told that Lehman had a huge capital hole. It did not. The Examiner concluded that Lehman’s valuations were reasonable, with a net immaterial variation of between $500 million and $2.0 billion. Using the Examiner’s analysis, as of August 31, 2008 Lehman therefore had a remaining equity base of at least $26 billion. That conclusion is totally inconsistent with the capital hole arguments that were used by many to undermine Lehman’s bid for support on that fateful weekend of September 12, 2008.

The Examiner did take issue, though, with Lehman’s “Repo 105” sale transactions. As to that, I believe that the Examiner’s report distorted the relevant facts, and the press, in turn, distorted the Examiner’s report. The result is that Lehman and its people have been unfairly vilified.

Let me start by saying that I have absolutely no recollection whatsoever of hearing anything about Repo 105 transactions while I was CEO of Lehman. Nor do I have any recollection of seeing documents that related to Repo 105 transactions. The first time I recall ever hearing the term “Repo 105” was a year after the bankruptcy filing, in connection with questions raised by the Examiner.

My knowledge, therefore, about Lehman’s Repo 105 transactions, and what I will say about them today, is based upon my understanding of what I have recently learned.

As CEO, I oversaw a global organization of more than 28,000 people with hundreds of business lines and products and with operations in more than forty countries spread over five continents. My responsibility as the CEO was to create an infrastructure of people, systems and processes, all designed to ensure that the firm’s business was properly conducted in compliance with the applicable standards, rules and regulations.

There has been a lot of misinformation about Repo 105. Among the worst were the completely erroneous reports on the front pages of major newspapers claiming that Lehman used Repo 105 transactions to remove toxic assets from its balance sheet. That simply was not true. According to the Examiner, virtually all of the Repo 105 transactions involved highly liquid investment grade securities, most of them government securities. Some of the newspapers that got it wrong were fair-minded enough to print a correction.

Another piece of misinformation was that Repo 105 transactions were used to hide Lehman’s assets. That also was not true. Repo 105 transactions were sales, as mandated by the accounting rule, FAS 140.

Another misperception was that the Repo 105 transactions contributed to Lehman’s bankruptcy. That was not true either. Lehman was forced into bankruptcy amid one of the most turbulent periods in our economic history, which culminated in a catastrophic crisis of confidence and a run on the bank. That crisis almost brought down a large number of other financial institutions, but those institutions were saved because of government support in the form of additional capital and fundamental changes to the rules and regulations governing banks and investment banks.

The Examiner himself acknowledged that the Repo 105 transactions were not inherently improper and that Lehman vetted those transactions with its outside auditor. He also does not dispute that Lehman appropriately accounted for those transactions as required by Generally Accepted Accounting Principles.

I have recently learned that, in 2000, the Financial Accounting Standards Board published detailed accounting rules for transactions of this very type, described them and dictated how they should be accounted for. In 2001, Lehman adopted a written accounting policy for Repo 105 transactions that incorporated those accounting rules. E&Y, the firm’s independent outside auditor, reviewed that policy and supported the firm’s approach and application of the relevant rule, FAS 140.

As I now understand it, because Lehman’s Repo 105 transactions met the FAS 140 requirements, that accounting rule mandated that those transactions be accounted for as a sale. That was exactly what I believe Lehman did. Lehman should not be criticized for complying with the applicable accounting standards.

In other words, those transactions were modeled on FAS 140. The accounting authorities wrote the rule that expressly provided for those transactions and how they should be accounted for. To the best of my knowledge, Lehman followed those rules and requirements.

My job as the CEO was also to put in place a robust process to ensure that Lehman complied with all of its obligations to make accurate public disclosures. I had hundreds of people in the internal audit, finance, risk management and legal functions to ensure that we did, in fact, comply with all of our obligations.

Part of that process was E&Y’s role in auditing our financial statements and reviewing our quarterly and annual SEC filings. Each year, E&Y issued formal opinions that Lehman’s audited financial statements were fairly presented in accordance with GAAP, and they were.

We also had in place a rigorous certification process that was carried out in advance of every annual and quarterly SEC filing. That bottom-up process involved hundreds of people who had first-hand knowledge of the firm’s day-to-day business and the responsibility to review for accuracy and compliance the firm’s SEC disclosures before they were filed.

Before we made any annual or quarterly filing, the key people who were involved in this process signed certifications confirming that, to their knowledge, the filing did not contain any untrue statement of a material fact or any material omission and that it fairly presented Lehman’s financial position.

Our certification process culminated, every quarter, with a mandatory, allhands, in-person meeting, which was chaired by Lehman’s Chief Legal Officer. In addition to me, that meeting was attended by the firm’s President, Chief Financial Officer, Financial Controller, Executive Committee members, business heads, the principal internal audit, finance and risk managers, legal counsel and our outside auditors.

After we had reviewed the draft annual or quarterly filing in detail, the Chief Legal Officer and I would each ask everyone present to speak up if there was anything in the document that caused them concern, or if anything had been omitted that they thought should be included. Attendees were also told that they should speak separately with the Chief Legal Officer if they had an issue that they did not want to raise at the meeting. To my knowledge, no one ever, at any of those meetings, raised any issue about Repo 105 transactions.

I relied on this certification process because it showed that those with granular knowledge believed the SEC filings were complete and accurate. I never signed an SEC filing unless it was first approved by the Chief Legal Officer. Mr. Chairman, I thank you for allowing me to speak on these issues and I will be pleased to answer any questions this Committee may have.

Article courtesy of Dealbreaker

It’s not that they want to, as it would go against everything the Commission stands for (incompetence, letting frauds run rampant), not to mention seriously cut in on everyone’s porn surfing time. It’s just that, (no) thanks to the infernal examiner’s report, they might have, or risk looking worse than they already do.**

People at the SEC say that they are now facing “tremendous pressure” to bring a civil case involving the Lehman matter in the aftermath of the report, issued last month by the court-appointed examiner of the firm’s bankruptcy, Anton Valukas, said one person who deals with the SEC on a regular basis.

It’s unclear if the SEC can muster the necessary proof to show that top executives like former CEO Richard Fuld or the firm’s outside auditor Ernst & Young intentionally misled investors about the health of Lehman’s balance sheet in the months before it filed for bankruptcy in mid-September 2008, according to people close to the probe. Lehman’s bankruptcy filing was a key ingredient to the 2008 financial meltdown, which led to a massive bailout of the financial system and later a severe recession that is just now appearing to end. But these same people say that the pressure — from an outraged public and Congressional leaders — over the findings of the report has caused the SEC to expedite its inquiry, and has put pressure on the commission to file civil charges. It’s unclear when any charges might be filed by the SEC, but people close to the inquiry say the SEC believes it does bring one, it must do so “very soon,” possibly within a few months given a combination of the outrage over the report’s findings and that Lehman’s bankruptcy is going on two years old.

SEC Probe Of Lehman Picking Up Steam [Fox Business]

**Which would be quite the accomplishment and one also being considered worth going after.

Article courtesy of Dealbreaker

As it’s been previously mentioned, Dick Fuld has been sleeping like a baby since the examiner’s report on Lehman came out. Though some would suggest the report’s findings indicate Fuld is a criminal, the ex-CEO believes it painted him in a phenomenal light. Reading the final draft also put Dick in a great mood because it took a huge weight off his shoulders. This is going to seem crazy, but apparently he was actually a bit nervous about what the thing would say about him! To the extent he could barely enjoy himself! Not even picking out the perfect outfit soothed him; my god, he could barely match shirt and tie without collapsing on the closet floor. Basically, The Gorilla was an absolute ball of nerves and you if you want Charlie Gasparino’s opinion? Kind of acted like a big puss during the ordeal. Sayeth Chaz:

According to people who know how the former Lehman CEO behaved during the inquiry, he often appeared “hyper” and “highly agitated,” and “barely stood still” during the questioning. One person with knowledge of Fuld’s behavior said that at times “he broke down” when asked about Lehman’s demise, and at others exhibited a tremendous amount of “nervous energy.”

It’s honestly a good thing CG wasn’t around to witness this display first hand, as it would’ve sickened him. Ridiculous. Gaspo didn’t say this in his report, because he works for a family network, but it would not surprise him to hear that Fuld pissed his shorts in fear on a daily basis and furthermore, that those shorts were “frilly lace panties” (Chaz’s words, not mine). But if he had been there? You can bet he’d be having none of this, and would’ve had no problem telling Dick as much, while sharing a little piece of advice. Little something like this.

Article courtesy of Dealbreaker

As mentioned earlier this morning, Dick Fuld thought last week’s report on his firm’s bankruptcy was phenomenal, as it, in Dick’s mind, cleared him of any real wrongdoing because Repo 105 is completely legit. Others have now had a chance to weigh in and the consensus? The whole thing was a real gas. At least one former employee of the firm is finding some much needed comedic relief in this whole thing.

“When I read this, I giggle a little bit. Because $50 billion is a shitload of money, but in the grand scheme of things,” said a former managing director in England—where the accounting gimmick, named Repo 105, was given a legal endorsement that it couldn’t get here, “$50 billion is a drop in the ocean.”

Once Chuckles got a second to catch his breath, he wanted to get one thing straight. He’s not laughing with you, he’s laughing at you.

The former managing director in London said that Repo 105 was an open secret there, if it was a secret at all. “Yeah, yeah, yeah. In Europe, people just generically talk about it. It’s funny, for nonprofessionals, you can try to make it a smoking gun,” the source said, “I’m like, whatever.”

It’s such a NBD that I don’t even know why we’re talking about it. But while we’re on the subject? If you thought Lehman was bad? Maybe you should stick your nose in Goldman’s business. That shit will haunt your dreams. It’s like Saw over there.

“If Valukas went into Goldman Sachs, what do you think the report would look like?” another former exec asked, referring to the court-appointed examiner, Chicago attorney Anton Valukas. “This would be a fairy tale compared to that.”

The Repo Men’s New Lehman Shrug [NYO via DI]

Article courtesy of Dealbreaker

Fuld privately believes that the report by examiner Anton Valukas provides proof that he did nothing illegal as he steered Lehman through a financial mess that ultimately led the firm to file the largest bankruptcy in US history, according to sources familiar with the matter [...] But while Valukas in the report said that the Lehman estate has “colorable” claims against Fuld, former CFO Erin Callan, and other members of the financial team for not disclosing its use of the Repo 105 transactions, people in Fuld’s camp think differently. They say that if after poring over reams of documents and sifting through millions of e-mails, Repo 105 is the strongest example of Lehman’s supposed shenanigans, Fuld & Co. are in good shape.

In related news, Joe Gregory is looking for a job, if anyone knows of any opportunities.

Article courtesy of Dealbreaker

Under the Chapter 11 reorganization plan proposed by the company, Lehman sought authority to create an asset manager business called LAMCO that would specialize in management of Lehman’s commercial real estate, mortgages, principal investments, private equity, corporate debt and derivatives assets.

Lehman said LAMCO would provide management services to Lehman, administer its assets and offer long-term employment opportunities for the hundreds of Lehman employees working to liquidate the former investment bank’s estate.

Lehman plans to end bankruptcy, create new company [Reuters]

Article courtesy of Dealbreaker

Since Lehman Brothers bit the big one, many people have abandoned Dick Fuld. Former employees, friends, Erin– they all want nothing to do with him. There doesn’t seem to be much to gain in staying loyal to the ex-CEO, other than knowing you’ll never have to wonder whether or not you’re getting an honest answer to the question, does this outfit look like shit? (In fact, you won’t even have to bring it up– Dick will gladly broach that subject.)

So when it was suggested last week that Charlie Gasparino owed David Einhorn and all the critics of Lehman Brothers an apology, for saying that those claiming the bank was in a bad way had no idea what they were talking about, and that, were it to come down to a fight, street or otherwise, he’d have his money Fuld smoking all these fools, some peole might’ve assumed CG would admit the error of his ways and go on record to state that he’d officially stopped returning Fuld’s calls. Unfortunately, these people failed to remember two things: 1) Charlie Gasparino neither makes mistakes nor admits to them and 2) he never, ever turns his back on a friend. For these reasons and more (DF has dirt on CG), Charlie poses an interesting theory in his latest Daily Beast column– the guy preparing the report on Lehman released last week had an interest in making Fuld and Co.’s actions look worse than they maybe were–, that all in all, in said report, Team Lehman didn’t come off that bad and the Dick Fuld? Charlie’s still got his back.

I’ll be the first to tell you that Fuld was a good CEO who over time became arrogant and delusional, and with that allowed his firm to embrace risk in astronomically absurd ways, particularly as Lehman became more successful. Increasingly, he appointed yes men and yes women to senior posts, including Erin Callan, who in my opinion was grossly unqualified to be the chief financial officer of a major Wall Street firm that was rolling the dice on esoteric bonds. [...] But consider this: Valukas, a former U.S. attorney, works for the Lehman estate. It’s his job to get money for the estate to make creditors whole. In doing so, it’s his job to make Fuld & Co. look as culpable as possible in the way they handled the firm’s finances as it slid into bankruptcy.

Then consider something else: For all the time spent on this report, and the amount of evidence collected, and the high-ranking executives interviewed, there’s very little here to show that for all their recklessness, Fuld, Callan, and the rest of the crew knew that what they were doing was illegal. Quite the opposite: They thought the slimy ways they manipulated the firm’s balance sheets (the report makes reference to a particularly odious thing called “Repo 105”) were a legal way to make bad stuff look temporarily better. They even asked their auditors, Ernst & Young, if it was OK and it was, at least according to the accountants.

Article courtesy of Dealbreaker

“Shenanigans, Bob. Shenanigans.”

Article courtesy of Dealbreaker