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Lehman Brothers Accounting Scam

Lehman Brothers filed for bankruptcy in 2008 due to massive losses from subprime mortgage investments that the firm had disguised through an accounting scam. Lehman hid over $50 billion in loans by improperly classifying them as sales, making the firm appear healthier than it was. When the subprime crisis hit, Lehman's financial troubles were revealed and it collapsed, filing the largest bankruptcy in history. The fraud impacted the global economy and resulted in millions of job losses and reduced market values. While investigations continue, no senior Lehman executives have been charged for their roles in the accounting scam.

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Avinash Singh
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816 views20 pages

Lehman Brothers Accounting Scam

Lehman Brothers filed for bankruptcy in 2008 due to massive losses from subprime mortgage investments that the firm had disguised through an accounting scam. Lehman hid over $50 billion in loans by improperly classifying them as sales, making the firm appear healthier than it was. When the subprime crisis hit, Lehman's financial troubles were revealed and it collapsed, filing the largest bankruptcy in history. The fraud impacted the global economy and resulted in millions of job losses and reduced market values. While investigations continue, no senior Lehman executives have been charged for their roles in the accounting scam.

Uploaded by

Avinash Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Lehman Brothers

Accounting Scam
Presented By :
Charudatta Sarode - 69
Puneet Raina - 28
Rahul Gupta - 31
Avinash Singh - 8
Riddhi Agarwal -
Intro of
Lehman Bankruptcy Scandal
Brothers
Lehman Brothers
Lehman brothers was a global financial
services firm. It was founded in 1850. It
was doing business in investment
banking, investment management. The
firm was the 4th largest investment bank in
the united states.
They had headquarters in New York City.
Founders of Lehman Brothers

Henry Lehman Emanuel Lehman Mayer Lehman


The seed of bankruptcy Year
2003-04
Morphed into a real estate hedge

Investment Bank Real Estate Hedge


Reason behind the bankruptcy

Too much investment in Mortgage related


securities.
Sub Prime Mortgage Crisis
Very high Leverage Ratio.
Top ten bankruptcy
Lehman Brothers
Scandal
What was Scandal?

Hid over $50


billion in loans
by showing
them as sales at
the end of each
quarter
Reason for the scam
The trick made Lehman
Brothers look much healthier
— on paper, at least. These
guys were desperate to fool
investors and credit rating
agencies. They had screwed
up on a truly colossal scale,
and lined their pockets all the
while.
How they did it
Repo 105:-An
accounting trick in
They was able which a company
to manipulate classifies a short-term
the books by loan as a sale and
using “Repo subsequently uses the
105” cash proceeds from said
sale to reduce its
liabilities.
How they got caught?

Richard Fuld (CEO) Erin Callan (CFO)

Auditor, Ernst & Young


Impact
This was the largest bankruptcy in the entire
world, so basically everyone got affected
Less profitsofU.S based companies
Cost of borrowings also increased
Almost 6 million jobs were lost all over world
Unemployment rate almost doubling to 10 %
Impact
Millions of investors lost all or almost all of
their money
Reduced global market value by $10
trillion in market capitalization
Intensified the downturn that started in late
2007 created from the sub prime mortgage
Popular index DOW JONES fell by 5000
point
Action taken against Lehman brothers

The Lehman brothers are still under


investigation and analysis
No action have been taken against the
Lehman brother as of today due to lack
of evidence
Action taken against Ernst & young
Ernst &young was sued by New York supreme
court because they are believed to be
responsible for hiding the Lehman brothers’
Ernst & young was sued for a some of about
150million dollars for helping the Lehman
brothers.
On 15 April 2015 the attorney general said that
the Ernst $ young will pay 10 million dollars.
What happened to the Lehman Brothers
On September 20 ,2008 the Barclays acquired most of
Lehman's north America operation for 1.3 billion
dollars.
Nomura holdings Japan's top brokerage firm agree to
buy Asia divisions of Lehman brother for 225 millions.
The Lehman Brothers are still a corporation today with
roughly 300 employees and is trying to pay off its debt
As of January 2016, Lehman brother already pay 105
billions dollar to his unsecured creditor
Impact on Indian economy

Impact on BSE Sensex


ICICI Bank was the hardest hit
Impact India's GDP growth
Impact on India's exchange rate
Impact on reserve bank
How to avoid
Screen applicants thoroughly before hiring
them.
Implement internal controls to reduce fraud
risk.
Comparative financial statement must be used
Consider annual audits
Financial statement check
Thank You!

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