SEC knew Lehman broke own risk rules

Lehman Bros. Holdings Inc., which filed the biggest bankruptcy in U.S. history, violated its own risk-management rules with the knowledge of the Securities and Exchange Commission, a bankruptcy examiner said Monday.

“We found that the SEC was aware of these excesses and simply acquiesced,” Anton R. Valukas, the Lehman examiner, said in testimony to be presented Tuesday before the House Financial Services Committee on policy issues arising from his 2,200-page report on Lehman’s downfall.

After Bear Stearns Cos. almost collapsed in March 2008, the SEC and the Federal Reserve Bank of New York placed “embedded teams” at Lehman to gather information and monitor its financial condition, Valukas said in a transcript of his remarks. The heads of those institutions also spoke regularly to former Lehman Chief Executive Richard S. Fuld, Valukas said.

“So the agencies were concerned,” Valukas said in his statement. “They gathered information. They monitored. But no agency regulated.”

John Heine, an SEC spokesman, didn’t respond to a call seeking comment.

Former SEC Chairman Christopher Cox “had direct calls with Mr. Fuld every few weeks” starting in March 2008, the transcript said.

Treasury Secretary Timothy F. Geithner, who was president of the New York Fed through 2008, advised Fuld that Lehman needed to raise more capital or form an alliance with a stronger firm.

“The Fed and Treasury took pains to tell us that the SEC was Lehman’s regulator, and that they therefore deferred to the SEC,” Valukas “But former SEC Chairman Cox took equal pains to say . . . that the SEC’s statutory jurisdiction was limited to Lehman’s broker-dealer subsidiary and that it was not the regulator of Lehman itself.”