Lehman examiner: Questions should have been asked

New York: It's exactly 2 years to the day Wall Street giant Lehman Brothers filed for bankruptcy, sending shock waves across the financial world.

Lehman Brothers was hurt by a decline in real estate values and a financial crisis caused by lack of liquidity. Until today, Lehman's bankruptcy is the largest bankruptcy filing in US history with holdings over $ 600 billion (USD) in assets.

If the board of directors of Lehman Brothers Holdings Inc had asked more questions about accounting transactions used as "window dressing" on the firm's quarterly financial statements, disaster may have been avoided, the court-appointed examiner who probed the investment bank's collapse said on Wednesday.

"In most instances if you ask corporate officers direct questions, you will get direct answers...The questions weren't being asked," Lehman's bankruptcy examiner Anton Valukas said at a New York County Lawyers Association panel on Wednesday – two years to the date after Lehman filed its record bankruptcy.

Valukas, who filed a 2,200-page report in March that showed how Lehman had long used accounting gimmicks to bolster its balance sheet, said that Lehman's now famous "Repo 105" transactions that obscured its true financial picture by shifting assets and liabilities off its books, were "open and notorious" within Lehman.

But the firm's directors never really asked the firm's executives about "window dressing" and the firm's off-balance sheet liabilities.

"Questions about window dressing and transactions whose purpose is window dressing should be asked," Valukas said, noting that corporate executives sometimes believe it is a common practice to make balance sheets look better at the end of the quarter.

"There's no evidence Lehman personnel lied to the board," Valukas said. "Basic questions were not being asked by the board about things such as off-balance-sheet transactions."

Of course, other decisions can also be blamed for Lehman's collapse.

Valukas, who is also chairman of law firm Jenner & Block LLP in Chicago, said that Lehman had bet its future on the sub prime housing market in 2006 and 2007, but lost.

"Where others saw distress, Lehman saw opportunity," Valukas told the group of corporate lawyers gathered in Lower Manhattan on Wednesday, just a few blocks from Wall Street.

Instead of being considered one of Wall Street's geniuses for the risky bet, Lehman has spent the last two years in the Southern District of New York's bankruptcy court, deciding how to sell what remains on its balance sheet.

It has proposed a reorganization plan that offers unsecured creditors about 15 per cent to 27 per cent of their claims.