" implying fraud on an unprecedented level"

Felix Salmon had an interesting post on Lehman:

"According to its official balance sheet, Lehman Brothers had total stockholder equity, when it went bust, of about $26 billion: assets of about $639 billion minus liabilities of about $613 billion.

Lehman's shareholders have, of course, been wiped out; its assets, once they're liquidated and worked out, will go to its bondholders. Those bonds are trading at no more than about 10 cents on the dollar, which implies that the assets, far from being worth $639 billion, are in fact worth only about $60 billion.

Now I understand that things go at a discount when they're liquidated. But a $580 billion discount? That's beyond sense. There's something weird going on here, which I hope someone in the blogosphere will be able to explain to me"

Read the rest and the comments which are interesting. Here's my comment:

Posted: Nov 03 2008 10:26am ET

"Was it really worth only a tenth of that, by Lehman's senior management?"

You and the people in comments are making great points, but I still smell fraud given the previous posts and this one about Lehman.

There is simply too much ambiguity in all these transactions for me to credit goodwill. I want to wait and see what litigation and later investigations tell us about this event.

Investments that seem reasonable when described, were compromised by lack of capital and fear of risk. I can't help but think that many investors in Lehman must have been misled.

I actually feel that fraud will play a major role in the history of this overall crisis.

By DonthelibertarianDemocrat

Given my human agency theory, I believe that fraud is going to be a major issue in this crisis, along with the implicit and explicit government guarantees. It will not be the financial products themselves, or even regulation, because fraud was involved, not simply poor investments.

And consider this from one of Felix's previous posts:

"Avery does add a layer of complexity to Hempton's take on things: while the US legal regime is certainly friendlier to prime-brokerage clients than London law, a lot of the problems ultimately stem from the fact that Lehman Brothers in the US took all of LBIE's money out of the UK just before it folded. In other words, if LBIE hadn't had a rapacious parent which stripped LBIE of all its assets in its final hours, none of this might have happened.

What's more, although UK prime brokers regularly allow themselves to rehypothecate (ie, onlend) their clients' securities, US prime brokers also do exactly the same thing, after first asking their clients' permission. Their clients often say yes, because they can essentially make free money on their long positions by allowing their prime broker to lend them out to short-sellers.

As a result, even US hedge funds are more alert than ever to the issue of their prime brokers' counterparty risk."

I can't help but see Lehman's actions as described, both in taking advantage of the differences between the U.S. and U.K., but also in its shifting of funds, as fishy. I'm sorry, I smell real problems.