'Stupid' Lehman emails didn't stay 'just between us'

“Just between us,” it may be “stupid” to use certain words in email to “discuss” the “big trouble” you might face if you’re ever investigated for financial wrongdoing or a subsequent cover-up.

Those were some of the terms that examiner Anton R Valukas searched for in 34 million pages of Lehman Brothers Holdings Inc emails and reports, to find out who knew what about the risks that drove the fourth-largest securities firm into bankruptcy, according to his 2,200-page study on the collapse.

Valukas concluded that former Chief Executive Officer Richard “Dick” Fuld certified misleading financial statements. Valukas also said former Lehman Chief Financial Officers Christopher O’Meara, Erin Callan and Ian Lowitt didn’t disclose a financing method called Repo 105 that hid as much as $50 billion of Lehman’s debt as its credit dried up.

“What investigators are looking for is any turn of phrase that can give them insight into what people were thinking at that time,” said Peter Henning, a former Securities and Exchange Commission lawyer who teaches at Wayne State University Law School in Detroit. “That can be valuable because emails are real-time and often unfiltered and can help to establish intent,” he added.

At least three lawsuits using Valukas’s findings have been filed against Fuld and other Lehman executives, who asked a federal judge in Manhattan on June 4 to dismiss a class-action suit over Repo 105, saying balance sheet variations were disclosed.

Search terms
Fuld’s lawyer, Patricia Hynes, has said he didn’t know about Repo 105. Robert Cleary, Callan’s lawyer, has said she served Lehman diligently. They didn’t respond to emails seeking further comment about Valukas’s searches. Kelly Hnatt, a lawyer for Lowitt, and Michael Chepiga, a lawyer who represents O’Meara, declined to comment immediately.

The search terms came out of a session where 20 lawyers at Valukas’s firm, Chicago-based Jenner & Block LLP, were “told to sit down and be as imaginative as you can,” said Robert Byman, a partner at the firm who helped with work on Lehman. The terms were changed if searches produced too many hits, he said.

Emails searched by the examiner, a former federal prosecutor, show what life was like at New York-based Lehman as employees struggled to manage $613 billion of debt that eventually doomed the company in September 2008. Lehman has said it may spend another five years selling assets to pay unsecured creditors as little as 14.7 cents on the dollar.

Valukas, whose key terms included “risk,” “concern,” “breach,” “big trouble” and “too late,” said Fuld was warned about rising business risks in early 2007, yet encouraged risk-taking until the next year.