Carino, Patricia Andrea
A334
The Lehman Brothers Scandal
Bankruptcy of the fourth biggest investment bank in America
September 2008
Facts:
Lehman Brothers Holdings, Inc. was the fourth largest investment bank in the United
States until it declared bankruptcy less than a year after reporting its maximum profit ever. It was
revealed during the filing of these papers that they had $639 million in assets and $613 million in
debt. They progressed from humble beginnings as a goods store in Montgomery, Alabama, to
something like an employee base of 25,000 in 1844. They were seen as extremely successful, to
the point where they were labeled "too big to fail." Despite this, the federal government did not
provide any assistance to Lehman Brothers to help them recover from their economic meltdown.
Issues:
Lehman Brothers' problems influenced the occurrences of the financial crisis, which
included the start of subprime mortgages in 2007 and a large economic loss. The United States
of America Real estate markets and subprime mortgages were just two of the primary factors
that contributed to Lehman Brothers' downfall. Many investment banks, like Lehman Brothers,
relied on the short-term market to raise the funds they needed to run their day-to-day
operations. The failure of Lehman Brothers to secure cash within their company was basically
what held them back.
Lehman Brothers was known for its high-risk, high-leverage business practices, which
were supported by a small amount of equity. They relied on short-term financing or short-term
liabilities, despite the fact that the proposed transaction holdings were still in long-term state.
The employment of Ernst & Young Global Limited as Lehman Brothers' auditors from 2001
to 2008 which was another major issue. There were many sign-offs and financial statement
evaluations, all of which were unqualified. During the bankruptcy proceedings, examiner Anton
Valukas highlighted a number of concerns regarding Lehman Brothers' accounting methods,
claiming that Ernst & Young was accountable to Lehman Brothers because of misleading report
statements.