The Lehman Brothers employee who raised a red flag over the accounting trick that allowed the bank to hide the size of its bloated balance sheet was fired just weeks after making the complaint.
Matt Lee emerged as the sole hero of last week's bleak court report into the investment
bank's collapse, and was praised for expressing concern about transactions known as "Repo 105". These allowed Lehman to shrink the size of its balance sheet, something it did to the tune of about US$50 billion ($70.3 billion) for a few days around the end of each quarter in 2008.
The trick allowed the bank to pretend in its quarterly reports to shareholders that it was less highly leveraged than it really was.
Lee was a mid-level employee at Lehman's New York office, a 14-year veteran of the firm, when he wrote to senior managers in May 2008 alleging poor accounting practices. His claims were investigated by the bank's auditors, Ernst & Young, which was criticised in last week's examiner's report for failing to pass Lee's allegations up for consideration by the Lehman board. Ernst & Young says it did not find any material issues.
Within weeks of the incident, Lee was fired. "It was easier to just shut him up and let him go," his lawyer, Erwin Shustak, told the Wall Street Journal yesterday.
Lee was a casualty of the round of lay-offs carried out by Lehman in June 2008, as it struggled to cut costs in the teeth of the credit crisis and collapsing confidence among its clients. More than 8000 staff members were let go in the months before the bank ultimately filed for bankruptcy in September 2008.
Over 380 Lehman employees who have remained with the shell of the collapsed company under its liquidators, Alvarez & Marsal, have new hope for their careers in a reorganisation plan presented to the bankruptcy court. Lehman will be converted into an asset management company called Lamco, which instead of just winding down Lehman's portfolio of property and private equity investments will also seek new business managing the assets of other collapsed firms.
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