Stephen Foley: The familiar themes in Lehman's latest drama


US Outlook: In Enron the Play, the West End smash coming here to Broadway in the spring, "the Lehman Brothers" are depicted as conjoined twins in a single over-size suit jacket.

Don't be surprised if they get their own spin-off show. The bankruptcy court judge who just unsealed an examiner's report on the collapse of Lehman said the document reads "like a best-seller". Its author, the veteran lawyer Tony Valukas, might want to option the rights.

Mr Valukas's tale has more than a few echoes of Enron. There are the outrageous accounting fiddles, transactions designed to hide the deteriorating state of Lehman's finances and which got more desperate as the firm headed into its long death spiral. There is the accounting firm that failed to raise any red flags. There are culpable executives, including Dick Fuld, as the Kenneth Lay character who did not dig into details. On conference calls where analysts were misled over Lehman's leverage reduction, the hapless Erin Callan is a politer version of Jeff Skilling in a trouser suit. There is even a whistleblower, one Matthew Lee in the role of Sherron Watkins.

Of course, this is only one telling of the story, and from a lawyer appointed specifically to look for people that Lehman Brothers' creditors can sue to help recover some of their losses. Nonetheless, Mr Valukas set himself high burdens of evidence before making his accusations of negligence against Mr Fuld, Ernst & Young et al.

Those criticised in the report have their defences, although Ernst & Young yesterday sounded mealy-mouthed. It last audited Lehman in 2007, and had responsibility only for making sure it accorded with accounting standards, a spokesman said. In other words, all that stuff designed to make Lehman's leverage look less than it was, the repo practice that even Bart McDade, its head of equities, described as "another drug we are on", E&Y says: "Nothing to do wiv us, guvnor."

The firm is hardly in danger of going the way of Enron's auditor, Arthur Andersen; there's no sniff of shredded documents here. But let's hope it is reassuring its clients that it sees itself having a wider duty of care, as everyone inside an organisation does, to raise ethical red flags, as well as accounting ones.

This is what is so angering about the details set out by the examiner. Everyone appears to have been aware that the suddenly notorious Repo 105 was designed to flatter and to deceive, and concerned about "reputational risk" should it be discovered. What they don't appear to worry about is its legality, since they travelled an ocean to get legal cover for it.

Mr Valukas has discovered that Lehman operated in that space between the letter of the law and the spirit. It is time to perform this story for an audience: of 12 jurors.

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