Where were the lawyers? More Lehman details emerge

This morning, a juicy, Page One, above-the-fold piece runs in the NY Times about the shenanigans undertaken by Lehman Brothers to obscure the true state of its finances. The story draws on anonymous insider interviews and a 2001 internal memo which advocated that Lehman invest in the small financial firm Hudson Castle.  According to the Times account, Lehman effectively controlled Hudson Castle while appearing to deal with it at arm’s length. Hudson provided Lehman with a favorable source of financing without any “headline risk” if a deal failed. The piece is strewn with lurid images of “hidden passages,” “shadowy entities,” “alter egos,” and so on. Utterly absent from this account are lawyers and/or law firms. But didn’t somebody have to draw up the papers for the special purpose entities? Who opined that things were aboveboard with the SEC and SOX? Can there be any doubt that in-house counsel and outside firms had a big role in greasing the rails of the Lehman trainwreck?

Washington Lawyer’s January cover story, “Financial Crisis 2008: Where Were the Lawyers?” wrestles with its title question at great length and is recommended reading.

Related: In the court-ordered Examiner’s Report into the collapse of Lehman, in which Examiner Anton Valukas (chair of Jenner & Block) concludes that Lehman’s directors should be immunized from personal liability, there appears this interesting nugget:

Unable to find a United States law firm that would provide it with an opinion letter permitting the true sale accounting treatment under United States law, Lehman conducted its [balance sheet manipulations] under the aegis of an opinion letter from the Linklaters law firm in London.

A Times (UK) look at the Examiner’s Report here.

-posted by brian