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Lehman BrothersLehman Brothers is a global finance corporation that provides broker-dealer, trading, research, and investment banking services. The firm serves corporations, individuals, institutions, governments, and municipalities. Lehman Brothers maintains headquarters in New York, London, and Toyko. Like many other securities firms, Lehman Brothers has recently been beset by allegations of securities fraud and conflicts of interest. Why is Lehman Brothers accused of fraud? Lehman Brothers was one of ten securities firms to agree to fines from the SEC without being formally charged of fraud. The firm also agreed to make internal changes in an attempt to avoid conflicts of interest and improve client service in the future. Lehman Brothers is accused of allowing its investment banking interests to dictate its analysts’ stock ratings. In fact, six senior analysts at Lehman Brothers were under contracts that linked their bonuses to the investment banking business they generated. Lehman Brothers went so far as to market itself to potential investors by touting the ability of its analysts to “move stock prices.” Email evidence between Lehman analysts and their supervisors and clients has helped to illuminate the problem. One former employee freely admitted that his stock reports could mislead ordinary investors and that his stock ratings were “fairly meaningless.” Another complained that he was not allowed to downgrade a firm’s rating when he should have because of the investment banking interests of his superiors. Frank Gruttadauria In a separate case, a former Lehman Brothers analyst, Frank Gruttadauria, confessed to an elaborate scheme that defrauded his clients of millions of dollars. Mr. Gruttadauria admitted to sending fake statements to his clients, showing transactions that never took place and earnings that never existed. In fact, according to lawsuits filed by his former clients, Mr. Gruttadauria—while pretending that he was using their money in profitable investments—was secretly using clients’ money to pay back other customers who wanted to make withdrawals on their accounts. He also used that money for his own personal gain. He allegedly purchased an airplane and a condominium with stolen investment dollars. Lehman Brothers offered to refund money to clients who had been victims of Mr. Gruttadauria’s scheme. Many have chosen instead to file lawsuits against Lehman Brothers and the other two firms where Mr. Gruttadauria had worked. They argue that proper supervision and compliance protocols could have prevented the fraud he allegedly committed for more than twenty years. What is the status? Lehman Brothers agreed to pay $25 million to investors who have lost money due to the alleged fraud, $25 million in penalties to the SEC, $25 million for independent stock research, and $5 million for investor education. The full amount of $80,000,000 is part of a $1.4 billion settlement by the ten firms accused of fraud by the SEC. Even more significantly, Lehman Brothers has agreed to make major structural changes within the firm. Here are some of the key changes that will take place: · Analysts’ contracts will not base bonuses on the amount of investment banking revenue they raise · Investment bankers will not supervise analysts · Investment bankers will not decide which companies their analysts cover · Analysts will no longer solicit investment banking business · Research reports must state whether or not the company in question is an investment banking client · Analysts’ performance will be published on the Lehman Brothers website These changes are intended to separate the functions of investment banking and research and analysis as much as possible. If you have lost money due to Lehman Brothers fraud, you may want to consider contacting a qualified securities fraud attorney. |