Thursday, July 31, 2008

Smells Like Enron (Lehman Brothers)

Lehman Brothers, a sort of Wall Street cousin to Bear Stearns (read: should have collapsed a long time ago), is showing that it finds Enron style solutions to financial inconveniences a usefull way to stave off pending disaster.

The company spun off a hedge fund staffed by "former" Lehman executives. R3 Capital Partners is a group that was essentially established to "buy" Lehman's risky investments, taking them off of Lehman's balance sheets.

Lehman is going out of its way to deny that it has any "ability to exercise significant influence'' (Lehman Spokewoman Keri Cohen) over R3. But the evdidence shows otherwise:

1. R3's employees maintain their restriced Lehman stock as if they were still Lehman employees.
From Naked Capitalism
"the former employee charged, based on information provided by several people at Lehman, that the R3 employees' restricted stock was still vesting on its original schedule, as if they were still on the firms' payroll. If true, this is both highly unusual and costly."

2. Lehman assets could account for nearly half of the fund's investment base. According to Lehman's own advisor Felix G Rohatyn in an interview with Andrew Sorkin of The New York Times, money like that does buy influence:
“The big difference is the political element,” he said. Mr. Buffett is seeking the best return when he invests; that’s his only goal, Mr. Rohatyn said. For Dubai and China, whether the investment returns 10 percent or 20 percent — or perhaps much less — is almost beside the point, he suggests. What they really want is influence on the world stage, despite their insistence otherwise."

Yes the article and the quote are discussing a different idea, but Rohatyn's point is that money buys influence. But given this quote an admitted 48% holding by Lehman in R3, could Rohatyn deny that Lehman has influence in R3?

3. Lehman is R3's Landlord.

The Empire Strikes Again
R3 allows Lehman to hide the truth from investors, creating and funding it's own buyer for potentially failing assets. This is very much like Enron's Chewco created to hide debt off balance sheets and inflate profits. Chewco was named after Chewbacca, a Star Wars character, I have to say "R3" sounds similarly named considering the star droids R2D2 and C3PO.

[Naked Capitalism and Bloomberg News]

1 comment:

doc holiday said...

The main point to be made here is that Enron accounting fraud started to unwind before Bush took office, by which time, the ball was rolling fast and the law and legal sharks were afoot grabbing crooks, pirates and finding evidence of corruption, collusion and fraud.

Unfortunately (in retrospect) The DOJ and FBI, FTC, SEC were still somewhat honest or at least had to appear to care about the illegal Enron activities.

Those were the good ol' days, and now (obviously) DOJ, FBI, FTC, SEC, etc, etc are as corrupt as ol' Enron and obviously no push what so ever to go after similar crimes -- but, yet the one difference in all this, is that much more money is involved today!

Re: Bush administration and the Enron connection

"During 2001, there were also at least 14 contacts with the Commerce Department; 10 contacts with the Energy Department; 9 contacts with the Treasury Department; 5 contacts with the Commodity Futures Trading Commission; 5 contacts with the Federal Energy Regulatory Commission; 4 contacts with the US Export-Import Bank; 4 contacts with the Overseas Private Investment Corporation; 3 contacts with the US Trade Representative; 2 contacts each with the Agriculture Department, the Environmental Protection Agency, the Federal Communications Commission, the International Trade Commission, the State Department, the Surface Transportation Board, and the Department of Transportation; and 1 contact each with the Federal Reserve, the Interior Department, the National Oceanic and Atmospheric Administration, and the Securities and Exchange Commission.