Dow Jones Newswires | The U.S. Trustee-appointed examiner of the
Lehman Brothers Holdings Inc. bankruptcy said the firm exceeded its own
risk limits and that the U.S. Securities and Exchange Commission “simply
acquiesced.”

By 2007, several regulators including the SEC “were concerned about
Lehman’s future and the effect of Lehman’s possible demise on the U.S.
economy,” Anton Valukas, who was U.S. attorney for the Northern District
of Illinois in the late 1980s, in testimony prepared for a Tuesday
hearing before the House Financial Services Committee.

The near collapse of Bear Stearns in 2008 caused the SEC and the Federal Reserve Bank of New York to place embedded teams in Lehman to monitor its condition, Valukas’ testimony said. The Federal Reserve Bank also was in regular talks with the SEC and the New York Fed about the situation.

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

The SEC was the consolidated supervisor of Lehman in 2007 and 2008 as a result of Lehman’s participation in a voluntary oversight program that is no longer in operation. According to Valukas, the Fed and the Treasury Department deferred to the SEC as the primary regulator of Lehman in that period.

SEC Chairman Mary Schapiro’s written testimony before the same committee said the voluntary program “lacked sufficient resources and staffing, was undermanaged and at least in certain respects lacked a clear vision as to its scope and mandate.”

Schapiro said the SEC could have done a better job of identifying certain risks and requiring additional capital and liquidity to meet those risks.

“Once Bear Stearns averted collapse only through a government-assisted sale, it is not clear that anything the SEC could have done would have prevented Lehman’s bankruptcy,” Schapiro’s testimony said.

Valukas disclosed last month that Lehman used an accounting gimmick involving repurchase agreements to mask some $50 billion in debt before its collapse. The SEC now is querying nearly two dozen financial and insurance firms about how they use such agreements.

Schapiro said the SEC didn’t audit Lehman’s balance sheet but “depended on the integrity” of the information provided by the firm.

Valukas said the SEC knew Lehman was exceeding its risk control limits and it “should have known that Lehman was manipulating its balance sheet to make its leverage appear better than it was.”