Still Paying for Lehman’s Demise

By WILLIAM D. COHAN
NYT

Nearly two years ago, in the middle of a financial crisis of historic proportions, a federal bankruptcy judge, James M. Peck, made the gutsy decision to approve the sale of the bulk of Lehman Brothers’ domestic investment-banking business to Barclays for between $1.3 and $1.7 billion, including the Lehman’s Seventh Avenue headquarters, which was worth nearly $1 billion. Judge Peck’s decision came four days after a deal to sell all of Lehman to Barclays fell apart at the 11th hour and Lehman filed the largest bankruptcy case ever.

Normally a sale of such magnitude from a bankrupt estate takes many months to stitch together, since forlorn creditors want to make sure that every potential bidder for an asset has had as much time as necessary to kick the tires and make the highest bid possible. But Judge Peck decided that the parts of Lehman Brothers were wasting away quickly and that he should move with all deliberate speed to try to preserve what he could of a firm where the assets walk out the door every night, and were doing just that. “Lehman Brothers became a victim,” he said when he approved the rushed sale. “In effect, the only true icon to fall in the tsunami that has befallen the credit markets. And it saddens me.”
Why should Lehman’s creditors foot the rapidly mounting legal bills for people like Dick Fuld?

Notwithstanding the fact that Judge Peck is now overseeing litigation in his courtroom about whether Barclays conned Lehman in the original sale and should have paid billions more for the business, he will have the opportunity, at a hearing on Aug. 18, to make another gutsy call: He can — and should — take a heroic stand against continuing to use the dwindling assets of the Lehman estate to pay the ongoing legal bills of Lehman’s former officers and directors, the very people who helped drive the firm off the cliff in the first place. Their culpability was made abundantly clear by the comprehensive 2,200-page post-mortem released in March by the special examiner, Anton Valukas.

Why should Lehman’s creditors, who stand to get pennies on the dollar when the bankruptcy case winds up years from now, foot the rapidly mounting legal bills for people like the former chief executive Dick Fuld and two of his top officers, Erin Callan and Ian Lowitt? More important, what kind of message does it send to existing and future corporate leaders if there is no limit to how far they can go to avoid taking responsibility — be it ethical, moral or financial — for their actions?

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