Washington, D.C.-The House Financial Services Committee plans to probe the regulatory failures that led up to the collapse of Lehman Brothers after a bankruptcy examiner released a damning report in March on the investment bank's accounting manipulations.
The report detailed Lehman's abuse of "repo transactions" to shift $50 billion worth of assets off its balance sheet at the end of the first and second quarters of 2008 in order to report less debt than it had, while claiming the transactions as sales, rather than financing.
The examiner found that the SEC did not force Lehman to change the way it accounted for its liquidity pool, which Lehman claimed was far larger than SEC regulators believed it to be. Many of the assets were not readily convertible to cash or had already been pledged as collateral to clearing firms.
At a hearing of the House Appropriations Subcommittee on Financial Services, SEC Chairman Mary Schapiro admitted that her agency's oversight of Lehman had been "terribly flawed in design and execution."
Meanwhile, 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.
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