The SFA, one of the City's financial watchdogs, has produced a 'statement of case' - a notice to Lehman Brothers stating that it believes the bank has breached its regulations. The SFA is awaiting a response from Lehman.
If the bank decides to dispute the allegations, the case will be taken to an internal tribunal. If not, it will be fined and the details of its offences made public. A spokesperson for Lehman Brothers told the Independent on Sunday: 'We are not making any comment. We have co-operated with the regulators and that is all we have to say.'
The SFA's preliminary report is thought to list 12 regulatory lapses relating to stock lending by Bishopsgate Investment Management, a fund manager owned by the Maxwell family. Shortly before Robert Maxwell's death in November 1991, Lehman Brothers accepted securities taken from the Common Investment Fund - the central pool of Maxwell pension fund assets run by BIM - as collateral for loans to Maxwell's private companies. These assets are now part of a protracted legal battle.
In August 1993, Robson Rhodes, the liquidator of BIM, served a writ saying that Lehman Brothers knew, or should have known, that the assets it received were beneficially owned by the pension funds. In January 1994, the bank voluntarily returned shares worth more than pounds 27m.
Together with Invesco and the stockbrokers Capel-Cure Myers, which were both acting as fund managers for the Mirror Group pension scheme, it also reached an out-of-court settlement with the pension fund trustees.
Lehman Brothers has paid back pounds 15m but refused to return a remaining pounds 70m of securities. The bank claims that it accepted the shares in good faith and had no reason to believe the Maxwell companies were not entitled to use the shares as collateral for loans. The case is scheduled for trial next April.
Criticism by the SFA will strengthen the hand of BIM's liquidator. If the allegations are proved, the likely result would be a penalty. Last year, Goldman Sachs was fined pounds 160,000 for regulatory breaches relating to its involvement in the media magnate's empire. The fine was the biggest ever levied by the SFA, although a paltry sum for one of the world's leading investment banks.
Fear of public opprobrium has proved more effective in securing the co-operation of City firms caught up in the Maxwell saga. It was almost certainly behind Lehman Brothers' decision last January to settle its dispute with the pension fund trustees. Although the allegations centred on the activities of the 1,400-strong London office, currently headed by Daniel Tyree - who joined after the disputed stock lending transactions - the bank was clearly reluctant to attract unfavourable publicity in the run-up to the demerger from American Express, its travel and financial services parent.
The spin-off from American Express was completed at the end of May, when the company distributed its 98.2 million shares in the bank through a tax-free dividend to shareholders. They received one share in Lehman Brothers for every five they held in the parent company. However, the shares were trading on a 'when-issued' basis (the Wall Street term for a grey market) for much of May and, after opening at dollars 20 ( pounds 13), immediately fell to dollars 18. They are currently trading at about dollars 17.75.
The drop in the share price reflects the fact that Lehman Brothers is not in the Standard & Poor's 500 index - where many fund managers prefer to confine their equity investments - whereas American Express was. This has triggered selling.
But Lehman Brothers is also one of the youngest US investment banks. Despite a history that goes back more than 140 years, it has only operated in its current form for the past three years. The bank was bought by Shearson in 1984, after management difficulties threatened to destroy it, and the two firms were run as one until 1990.
When it was set up as a stand-alone entity, American Express provided a cash injection of more than dollars 1.25bn to ensure that it secured an A credit rating. Although the move put the bank on a more secure footing - it now has assets of some dollars 80.5bn - it still has lower margins than those at most blue-chip investment banks.
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