The WSJ reports that the investigation of Lehman’s collapse “has hit daunting hurdles that could result in no civil or criminal charges ever being filed against the company’s former executives.” The problem is that, despite Lehman’s examiner’s conclusion that Lehman used tricks (the famous Repo 105) to “paint a misleading picture of its financial condition,” Linklaters signed off on these transactions and Ernst & Young’s Lehman audit conformed with then-existing standards.
Prosecutors likely remember the acquittal of Bear Stearns’ hedge-fund managers despite some seemingly damaging emails. They learned then that people don’t go to jail just for guessing wrong about the market. This time, Lehman’s Fuld is saying he had “absolutely no recollection whatsoever of hearing anything” about Repo 105s and that Lehman sank because of “uncontrollable market forces” and the fact that the government decided not to rescue Lehman.
A couple of weeks ago Angelo Mozilo’s criminal investigation also ended without charges. At the time I discussed a Holman Jenkins column explaining that
Mozilo basically got caught in a bubble. * * * He didn’t foresee “unprecedented collapse in home prices” or “Countrywide’s own funding drying up overnight.” So Mozilo avoided jail for following the crowd and not foreseeing the unexpected. That left him better off than Jeff Skilling or Ken Lay.
But as Fuld and Mozilo go on with their lives, people are still howling for financier blood. It’s hard to believe that the trial of Raj Rajaratnam, who is facing 20 years in jail for trading in true information, doesn’t have something to do with that.
