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Lehman

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Submitted By cciken1
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The crumble of the Lehman Brothers undertook the world by storm. The Lehman Brothers was the leading mortgage broker in the across the globe for centuries. When they filed for bankruptcy in 2008 the financial world was crippled. Over 25,000 employees lost their jobs and livelihood due to the fact that this bankruptcy uprooted their lives and deserted them with absolutely nothing. The Lehman Brothers assets calculated up to $639 billion while their debt equaled to $619 billion (Case study: The collapse of lehman brothers, n.d.). This enormous volume of money for bankruptcy summed up to be the greatest bankruptcy in accounting financial history. This is clearly not the record the Lehman Brothers were attempting to break, but it was the reality. This catastrophe interposed to the $10 trillion in market capitalization that has affected the finance worldwide for the month of October 2008 (Case study: The collapse of lehman brothers, n.d.). This exploit devastated the stock market, the economy, the employees, and the families who trusted the Lehman Brothers company to use them to finance their home loans. Henry Lehman, a German immigrant, started a diminutive conventional store in 1844 and that was established in Montgomery, Alabama (Case study: The collapse of lehman brothers, n.d.). Then by 1850 Henry, Mayor, and Emanuel created Lehman Brothers the mortgage broker company (Case study: The collapse of lehman brothers, n.d.). The organization flourished as the nation grew and capital streamed into the economy allowing and encouraging families and individuals to purchase homes. The Lehman Brothers withstood the Great Depression, two world wars, and a capital deficiency to relish in a significant gross increase in assets for the company (Case study: The collapse of lehman brothers, n.d.). In 2003 and 2004 the housing market was experiencing an abnormal inclination of outrageous escalation that influenced the economy across the globe. This upsurge prompted the Lehman Brothers to acquisition five lending mortgage companies (Case study: The collapse of lehman brothers, n.d.). The acquirements facilitated an increase in a frequency like no other causing the Lehman Brothers revenue to rise 10% in one year. In 2007 the housing market was beginning to plummet and the company’s income at recorded $19.3 billion in revenue that ended up actually closing at $60 billion by the end of year (Case study: The collapse of lehman brothers, n.d.). The Lehman’s Brothers chief financial officer at the time made a decision that the fall in home market was a sustainable one and not one that should be noted in the annual balances (Case study: The collapse of lehman brothers, n.d.). He persisted to advise that the losses were not going to be a long-lasting hindrance nor disperse that resulted in plaguing the housing market long-term (Case study: The collapse of lehman brothers, n.d.). The market did recover from the economy collapse and the Lehman Brothers had a chance to downsize the colossal mortgage lender companies they owned however they chose not to and paid for it dearly. The Lehman Brothers continued to illustrate in the revenue books that they were profiting in a manner that did not coordinate to the economy or with the lending companies they owned in early 2008. The company was showing that they were flourishing, but they were indeed on the verge of drowning. In early September the worth of the Lehman stock began to take a nosedive and dropped 42% (Case study: The collapse of lehman brothers, n.d.). The company was scrabbling at the very last possible moment to decrease the mortgage portfolio because the Moody’s Investor Service initiated a credit rating review on Lehman which they feared (Case study: The collapse of lehman brothers, n.d.). This fumbling effort was obviously not adequate since the company’s stock sank the final 93% because the company could not complete a transaction with the South Korean bank and once that information leaked then it was over for the Lehman Brothers (Case study: The collapse of lehman brothers, n.d.). The company filed for bankruptcy and the Lehman Brothers company dwindled that eventually led to Bank of America acquiring it (Case study: The collapse of lehman brothers, n.d.). It was not until February 2013 when the four accounting management were essentially indicted for the misleading the accounting balances before it was too late. The four individuals disappeared and created new identities as they discovered there were charges forthcoming for their actions (Lehman brothers ceo arrested for accounting fraud, 2013). The federal authorities launched an undercover investigation in order to apprehend them and bring them to justice. They were attempting to take a flight to Moscow, Russia were they did not plan on ever returning back to the United States (Lehman brothers ceo arrested for accounting fraud, 2013). All four individuals were all exceptionally still prosperous yet seven years following the company bankruptcy. The Lehman Brother’s accounting conspiracy has been since identified as Repo 105 (Lehman brothers ceo arrested for accounting fraud, 2013). The accounting management used the international accounting laws in their favor. Certain British laws and United States laws differ concerning recording significant assets and they were trying to hide behind those factors. They were shuffling the balance statements between both countries to falsify the assets as the company was beginning to collapse to portray that they it was worth more that it actual was (Dixon and Winkler, 2010). The accounting management knew exactly what they their actions were going to result in. These measures are no different than those of smuggling funds from a company because they misrepresented their standings in order to receive capital from other corporations. These actions are the definition of accounting ethical breach because it should not have occurred under any circumstances. The incredible amount of pressure the CEO was under is comprehensible; however, it does not excuse him forming the several wrong decisions that later distressed thousands to maybe even millions of innocent people’s lives. The upper echelon leadership of this company left many families homeless and penniless because they were unaware of what was forthcoming. They failed the company, the legacy, the customers, the employees, and the generic public. In a sense they were setting an example of what to do and how to get away with it. In this case they were ultimately caught, but they set the blueprint of how to do it, how they were caught, and how to fine tune a situation to break it down to where others can prosper. In this case, the Repo 105, the CFO was a co-conspirator therefore his ethical behavior was just as rephrensable and probably even more so. He accounted sales as a transaction when in reality there were not any sales at all (Durden, 2010). In accounting this term is referred to as overcollateralization, which Lehman Brothers practiced as it became their regular occurrence. They would eliminate the inventory from the balance sheet for intervals of seven to 10 days. What the company was struggling to conceal is that they had already appropriated tens of millions in cash from the company and had not recompensed the funds (Durden, 2010). Then the company would apply for credit, procure it, delete what was required, and then reinstate the assets to the balance sheet (Durden, 2010). It is a complete dishonest and unethical method to conduct any type of business much less than the leading financial investment company in the world. In the end, doing the research and uncovering the truth of the demise of the Lehman Brothers, is astonishing. To hear bits and pieces of situations in the news on a daily basis is an entirely distinctive from actually understanding a total incident. Being able to distinguish the fact that the company was “cooking the books” in order to consistently remain the contender in financial investments is bewildering. It is an awful act and even ghastlier that the leadership would attempt to say that they were not aware that what they were doing was against the law. It is amazing that former financial leaders were seriously trying to claim this as their major defense. The four defendants in this case were also being charged under the Sarbanes-Oxley Act of 2002 which is an appropriate decision with the information dealing with this case. There were billions of dollars that were misappropriated and misrepresented on the balance sheets for years which increased as the fear bankruptcy grew near. The CEO and CFO had plenty of time to truly sell inventory to make true room on the balance sheet. There were several different steps that could have transpired prior to the Repo 105 scheme. It is quite evident that the leaders were only concerned about lining their pockets with more and more money for the longest amount of time possible.

References:
Case study: The collapse of lehman brothers. (n.d.). Retrieved November 2, 2014, from http://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp
Dixon, H., & Winkler, R. (2010, March 16). Lehman hid money with the help of global rules. Retrieved November 2, 2014, from http://www.nytimes.com/ 2010/03/17/business/17views.html?_r=0
Durden, T. (2010, March 11). The "repo 105" scam: How lehman fooled everyone (including allegedly dick fuld) and how other banks are likely doing this right now. Retrieved November 2, 2014, from http://www.zerohedge.com/article/repo-105-scam-how-lehman- fooled-everyone-including-allegedly-dick-fuld-and-how-other-banks-a
Lehman brothers ceo arrested for accounting fraud. (2013, February 4). Retrieved November 2, 2014, from http://dailycurrant.com/2013/02/04/lehman-brothers-ceo-arrested-accounting- fraud/

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