Fuld: Regulators Had 'Flawed Information' in Lehman Bankruptcy

Richard Fuld
Richard Fuld

U.S. regulators used "flawed information" when they decided not to extend the kind of aid to Lehman Brothers that later went to other financial institutions, according to prepared remarks that the bank's former CEO Richard Fuld will deliver before the Congressional Financial Crisis Inquiry Commission Wednesday.

Lehman filed for the nation's largest-ever bankruptcy in September 2008, a move that sparked panic in the financial markets.

Fuld is also expected to say that the bank asked the government to implement measures to prevent the need for bankruptcy, Bloomberg News reported. These measures included permission to convert into a bank holding company and a ban on naked short selling.

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Following the Lehman bankruptcy, many of these measures were implemented for other banks, with Goldman Sachs (GS) and Morgan Stanley (MS) both becoming bank holding companies.

"Lehman was forced into bankruptcy not because it neglected to act responsibly or seek solutions to the crisis, but because of a decision, based on flawed information, not to provide Lehman with the support given to each of its competitors and other nonfinancial firms in the ensuing days," said Fuld.

Fuld will tell the panel that Lehman Brothers had raised funds and cut exposure to illiquid assets by almost half.

In the most turbulent period of the financial crisis, the U.S. government extended aid to investment banks, insurer AIG (AIG) and auto companies General Motors and Chrysler in a bid to stabilize financial markets and prevent an economic depression.

Still, authorities have insisted they had no ability to rescue Lehman Brothers from its $639 billion bankruptcy.

"There was no mechanism, there was no option, there was no set of rules, there was no funding to allow us to address that situation." Thomas Baxter, general counsel for the Federal Reserve Bank of New York, will tell the panel.

The Financial Crisis Inquiry Commission is due to report its findings in December.