United States Bankruptcy Court Southern District Of New York : : : Worldcom, Inc: Fill & Download for Free

“We can bring a new era of responsibility and accountability to Wall Street and to Washington. We can put in place common-sense regulations to prevent a crisis like this from ever happening again…We can restore a sense of fairness and balance that will give every American a fair shot at the American dream. And above all, we can restore confidence – confidence in America, confidence in our economy, and confidence in ourselves.”—President Barack Obama, October 13, 2008.[1][1][1][1]On September 10th, 2008, Lehman Brothers CEO Richard Fuld convened a hastily arranged conference call.The 158-year-old investment bank teetered on the brink of collapse. While other firms began to exit the real estate market after housing prices began to drop in 2006, Lehman executives and traders had stupidly kept the riskiest subprime mortgage loans on its books.[2][2][2][2]Desperate for a buyer or a bailout during the intensifying financial crisis, Lehman Brothers decided on an early release of their preliminary third quarter earnings. On September 10, Fuld and his new CFO, Ian Lowitt, laid out their case for confidence to jittery investors in the conference call.Photo: Richard Fuld. Lehman Managers Portrayed as Irresponsible (Published 2008)Fuld touted the firm’s still-strong client relationships, while outlining their recent moves to write-down billions of dollars in commercial and real estate assets.[3][3][3][3]As you know over the past few quarters our plan was to protect our shareholders, our capital and our franchise by maintaining strong liquidity and exiting our real estate exposures in a measured way over time.[4][4][4][4]Lowitt followed Fuld’s comments with his own litany of bad news, offering stunning details of the firm’s commercial real estate exposure. However, he emphasized the bank’s liquidity, a key metric in assessing the company’s ability to survive this crisis.We maintained our cash capital surplus at $15 billion at the end of the third quarter. Our liquidity pool also remains strong at $42 billion, versus a record $45 billion at May 31.[5][5][5][5]In normal times, $42 billion would have been a reassuring number to investors and market analysts. This pool of cash should have been enough for Lehman to weather the storm, and also provide time to find a buyer for the company and its assets.Only five days later, on September 15th, Lehman Brothers filed for Chapter 11 bankruptcy. With $639 billion in assets, the firm’s stunning collapse remains the largest bankruptcy filing in U.S. history.[6][6][6][6]Source: In Lehman’s last days, Merrill Lynch may have allowed illegal bets against firmLehman Brothers’ bankruptcy was one of the early dominos to fall in the Great Recession of 2008, a financial crisis that crashed the world economy and ruined tens of thousands of lives.The crisis was the worst U.S. economic disaster since the Great Depression. In the United States, the stock market plummeted, wiping out nearly $8 trillion in value between late 2007 and 2009.Unemployment climbed, peaking at 10 percent in October 2009. Americans lost $9.8 trillion in wealth as their home values plummeted and their retirement accounts vaporized.[7][7][7][7]According to an analysis by the Federal Reserve Bank of San Francisco, every American has lost about $70,000 in lifetime income as a direct result of the crisis.[8][8][8][8]Saddled with these devastating economic losses, executives at Wall Street firms like Lehman Brothers were tone-deaf, hapless, and eager for government bailouts. Their disregard of risk mitigation, poor decision-making, and relentless focus on short-term gain at the expense of investors would provide endless fodder for the inevitable prosecutions.Historical precedent for the coming crackdown was readily available. During the savings and loan scandals of the 1980s, authorities prosecuted more than 1,000 individuals and secured 800 convictions.[9][9][9][9] This included top bank executives at the heart of the scandal.Source: Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)Executives at Enron, Tyco, and Worldcom did not escape accountability for their shady accounting, with top C-suite residents earning new homes in federal prison.[10][10][10][10]If homebuyers drowning in underwater mortgages were forced to bail out these executives’ firms, at least they would be treated to an old-fashioned, televised Wall Street perp walk.This schadenfreude would be especially sweet if applied to someone like Lehman Brothers CEO Richard “Dick” Fuld. Dick was a spectacularly overpaid tycoon during his years as the head of the Lehman dumpster fire.His compensation landed him among the highest paid CEOs in the country:2000: $66 million2001: $105.2 million2002: $28.7 million2003: $52.9 million2004: $41.8 million2005: $104.4 million2006: $27.3 million2007: $40 millionTotal compensation for eight years as CEO: $466.3 million.[11][11][11][11]In later Congressional hearings, oversight committee members took great pains to point out that Fuld “owns a mansion in Greenwich, Connecticut, an ocean front estate on Jupiter Island, Florida, a ski chalet in Idaho and a Manhattan apartment.”[12][12][12][12]Nell Minow, the editor of the research firm, The Corporate Library, highlighted Fuld's compensation, which exceeded $40 million last year."I think it is fair to say by any standard of measurement that this pay plan is as uncorrelated to performance as it is possible to be," she said.[13][13][13][13]After president Obama took office, the Justice Department set to work on investigating the Wall Street executives at the heart of the crisis.Unfortunately, it would not end with anything remotely resembling individual accountability.Reporter Jesse Eisinger, in an in-depth investigation on Great Recession prosecutions (published on April 30, 2014 for The New York Times and ProPublica), traced the efforts of the Obama administration to hold bank executives accountable. He found that the Justice Department’s efforts were halting, ineffectual, and ultimately doomed from the start.In the years since the celebrated cases against Enron, Justice officials hemorrhaged lawyers with trial experience. Multiple analysts at the Attorney General’s office, including a young Eric Holder (then deputy Attorney General in 1999), stressed that should take into account “collateral consequences” when charging banks during their periodic orgies of fraud.[14][14][14][14]Federal officials began to outsource major investigations of criminal wrongdoing to outside firms. In the case of Lehman Brothers, one of these firms - Jenner & Block - produced a damning 2,200 page report detailing executive misdeeds.[15][15][15][15]Despite 130 lawyers from Jenner working on the report, the bulk of the work for the government’s case fell to just one official: assistant U.S. Attorney for the Southern District Bonnie Jonas. Jonas did not work full-time on the case; though she occasionally brought in other attorneys to assist, she mostly pored over case files alone.According to Eisinger (in his 2017 book on the crisis), lawyers at Jenner were surprised that the government’s case seemed to ignore the Lehman CFO’s announcement of the firm’s liquidity in the week before bankruptcy.[16][16][16][16]The Justice Department never aggressively pursued what may have been the most promising angle. On Sept. 10, 2008, the chief financial officer of Lehman Brothers, Ian Lowitt, told shareholders and the public that the bank had $42 billion of available cash, or liquidity. The bank’s position, Lowitt reassured, “remains very strong.” Lehman would file for bankruptcy five days later.“What they were saying was not just wrong but materially wrong,” Robert Byman, a Jenner & Block partner, told me.[17][17][17][17]Jenner Investigators found a “wonderful chart breaking down the $42 billion liquidity figure into three categories: high, moderate, and low.” $15 billion had been pledged as collateral to other banks, and was therefore in the “low category.” This pool of money was not available to the company; executives knew that they could not tap these funds.[18][18][18][18]In his conversations with Lehman executives, Eisinger reported that executives seemed to know that their available cash was far lower than what was represented in the earnings call.At least two executives objected to how the bank was representing its liquidity, including its international treasurer, Carlo Pellerani, according to the Jenner & Block report. The law firm found that regulators, credit-rating agencies and Lehman’s outside lawyer had no idea that the liquidity pool wasn’t, in fact, all that liquid. When Lowitt came to talk to Jenner & Block, he explained that he had not fully understood the issues when he assured investors of its liquid assets.That may be a reasonable defense, but it does not appear that prosecutors and federal investigators made a serious attempt to test how much Lehman’s chief financial officer knew about his own books.Three Lehman executives and one regulator at the Federal Reserve, all of whom were involved in the bank’s desperate attempts to keep itself liquid, told me they were never even interviewed by any federal-government officials.[19][19][19][19]During the Obama administration, only one banker went to jail as a result of his actions during the financial crisis. Kareem Serageldin, a trader at Credit Suisse, served a 30-month sentence for “inflating the value of mortgage bonds in his trading portfolio, allowing them to appear more valuable than they really were.”[20][20][20][20] Serageldin was several rungs lower on the corporate ladder than those decision makers responsible for crashing the economy.Though it is sometimes difficult to directly trace campaign contributions to policy decisions, it is well-worth noting that Obama received (at the time) record-breaking support from Wall Street firms during his 2008 election, with $17.3 million in contributions.[21][21][21][21] (This record was broken by Mitt Romney during the 2012 election.)[22][22][22][22]CEOs at the major investment banks largely escaped any meaningful accountability. Large fines touted in press releases by Eric Holder’s Justice Department were paid by insurance companies or shareholders.[23][23][23][23] Bonuses continued to be paid to top executives at firms that received bailouts with little ability for the government to claw them back, in spite of vociferous press releases by prominent politicians.[24][24][24][24]Indeed, Richard Fuld himself now runs Matrix Private Capital Group, an investment firm founded in 2016 that managers more than $100 million in assets.[25][25][25][25]Ten years after the crisis, Fuld paid lip service to “taking responsibility” for the collapse of Lehman Brothers, yet remained bitter that his firm was not bailed out by the government.[26][26][26][26]And Barack Obama, despite his soaring rhetoric on “reforming” Wall Street, utterly failed in bringing any accountability to the elites at the center of the storm.Photo: “President Barack Obama, accompanied by Elizabeth Warren, announces that Warren will head the Consumer Financial Protection Bureau, Friday, Sept. 17, 2010, during an event in the Rose Garden of the White House in Washington. (AP Photo/Susan Walsh).”Supreme Court to decide whether Obama-era Wall Street cop is legal“[T]he banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.”—Senator Dick Durbin, April 2009.Footnotes[1] US election: Full text of Barack Obama's speech on the economy[1] US election: Full text of Barack Obama's speech on the economy[1] US election: Full text of Barack Obama's speech on the economy[1] US election: Full text of Barack Obama's speech on the economy[2] Too Big to Fail[2] Too Big to Fail[2] Too Big to Fail[2] Too Big to Fail[3] Too Big to Fail[3] Too Big to Fail[3] Too Big to Fail[3] Too Big to Fail[4] http://web.stanford.edu/~jbulow/Lehmandocs/docs/DEBTORS/LBHI_SEC07940_612771-612797.pdf[4] http://web.stanford.edu/~jbulow/Lehmandocs/docs/DEBTORS/LBHI_SEC07940_612771-612797.pdf[4] http://web.stanford.edu/~jbulow/Lehmandocs/docs/DEBTORS/LBHI_SEC07940_612771-612797.pdf[4] http://web.stanford.edu/~jbulow/Lehmandocs/docs/DEBTORS/LBHI_SEC07940_612771-612797.pdf[5] http://web.stanford.edu/~jbulow/Lehmandocs/docs/DEBTORS/LBHI_SEC07940_612771-612797.pdf[5] http://web.stanford.edu/~jbulow/Lehmandocs/docs/DEBTORS/LBHI_SEC07940_612771-612797.pdf[5] http://web.stanford.edu/~jbulow/Lehmandocs/docs/DEBTORS/LBHI_SEC07940_612771-612797.pdf[5] http://web.stanford.edu/~jbulow/Lehmandocs/docs/DEBTORS/LBHI_SEC07940_612771-612797.pdf[6] Top 10 Bankruptcies - TIME[6] Top 10 Bankruptcies - TIME[6] Top 10 Bankruptcies - TIME[6] Top 10 Bankruptcies - TIME[7] https://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis--10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html[7] https://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis--10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html[7] https://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis--10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html[7] https://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis--10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html[8] https://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis--10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html[8] https://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis--10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html[8] https://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis--10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html[8] https://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis--10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html[9] Were Bankers Jailed In Past Financial Crises?[9] Were Bankers Jailed In Past Financial Crises?[9] Were Bankers Jailed In Past Financial Crises?[9] Were Bankers Jailed In Past Financial Crises?[10] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[10] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[10] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[10] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[11] Fraud, failure and bankruptcy pay well for CEOs[11] Fraud, failure and bankruptcy pay well for CEOs[11] Fraud, failure and bankruptcy pay well for CEOs[11] Fraud, failure and bankruptcy pay well for CEOs[12] Lehman Brothers Boss Defends $484 Million in Salary, Bonus [12] Lehman Brothers Boss Defends $484 Million in Salary, Bonus [12] Lehman Brothers Boss Defends $484 Million in Salary, Bonus [12] Lehman Brothers Boss Defends $484 Million in Salary, Bonus [13] Lehman Brothers Boss Defends $484 Million in Salary, Bonus [13] Lehman Brothers Boss Defends $484 Million in Salary, Bonus [13] Lehman Brothers Boss Defends $484 Million in Salary, Bonus [13] Lehman Brothers Boss Defends $484 Million in Salary, Bonus [14] https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2010/04/11/charging-corps.PDF[14] https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2010/04/11/charging-corps.PDF[14] https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2010/04/11/charging-corps.PDF[14] https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2010/04/11/charging-corps.PDF[15] Lehman Brothers Holdings Inc. Chapter 11 Proceedings Examiner Report[15] Lehman Brothers Holdings Inc. Chapter 11 Proceedings Examiner Report[15] Lehman Brothers Holdings Inc. Chapter 11 Proceedings Examiner Report[15] Lehman Brothers Holdings Inc. Chapter 11 Proceedings Examiner Report[16] The Chickenshit Club[16] The Chickenshit Club[16] The Chickenshit Club[16] The Chickenshit Club[17] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[17] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[17] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[17] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[18] The Chickenshit Club[18] The Chickenshit Club[18] The Chickenshit Club[18] The Chickenshit Club[19] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[19] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[19] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[19] Why Only One Top Banker Went to Jail for the Financial Crisis (Published 2014)[20] How Wall Street’s Bankers Stayed Out of Jail[20] How Wall Street’s Bankers Stayed Out of Jail[20] How Wall Street’s Bankers Stayed Out of Jail[20] How Wall Street’s Bankers Stayed Out of Jail[21] PolitiFact - Hillary Clinton: Barack Obama set new Wall Street fundraising record when he first ran for president[21] PolitiFact - Hillary Clinton: Barack Obama set new Wall Street fundraising record when he first ran for president[21] PolitiFact - Hillary Clinton: Barack Obama set new Wall Street fundraising record when he first ran for president[21] PolitiFact - Hillary Clinton: Barack Obama set new Wall Street fundraising record when he first ran for president[22] PolitiFact - Hillary Clinton: Barack Obama set new Wall Street fundraising record when he first ran for president[22] PolitiFact - Hillary Clinton: Barack Obama set new Wall Street fundraising record when he first ran for president[22] PolitiFact - Hillary Clinton: Barack Obama set new Wall Street fundraising record when he first ran for president[22] PolitiFact - Hillary Clinton: Barack Obama set new Wall Street fundraising record when he first ran for president[23] You asked, we answered: Why didn’t any Wall Street CEOs go to jail after the financial crisis? | Marketplace.org[23] You asked, we answered: Why didn’t any Wall Street CEOs go to jail after the financial crisis? | Marketplace.org[23] You asked, we answered: Why didn’t any Wall Street CEOs go to jail after the financial crisis? | Marketplace.org[23] You asked, we answered: Why didn’t any Wall Street CEOs go to jail after the financial crisis? | Marketplace.org[24] You asked, we answered: Why didn’t any Wall Street CEOs go to jail after the financial crisis? | Marketplace.org[24] You asked, we answered: Why didn’t any Wall Street CEOs go to jail after the financial crisis? | Marketplace.org[24] You asked, we answered: Why didn’t any Wall Street CEOs go to jail after the financial crisis? | Marketplace.org[24] You asked, we answered: Why didn’t any Wall Street CEOs go to jail after the financial crisis? | Marketplace.org[25] About Us | Matrix Private Capital Group[25] About Us | Matrix Private Capital Group[25] About Us | Matrix Private Capital Group[25] About Us | Matrix Private Capital Group[26] Lehman Brothers collapse: where are the key figures now?[26] Lehman Brothers collapse: where are the key figures now?[26] Lehman Brothers collapse: where are the key figures now?[26] Lehman Brothers collapse: where are the key figures now?