done to help us at least get some insight as to what was going on. thank you. i yield back. >> the gentleman from california. >> i would like to start by clarifying your role. when i saw you were making a report i thought here is somebody brought in from the neutral world who will give us a report. i think you have a good report but it is my understanding that in effect you work for the creditors of lehman brothers. they would like to find some deep pockets that can supplement what they are otherwise going to receive and it is not your job to throw away or ignore any colorable claim they might have. do i understand your role? >> that is not my role. my role as the examiner was to

answer questions put to me by court order. i am by training and attorney, former u.s. attorney in chicago and chairman of a law firm and my role as an examiner was to determine what the facts are, put the cards face up on the table and to the extent that the facts from those facts are can draw a conclusion whether there was a colorful claim to play that out and as i undertook that responsibility that included everything that might exist for those colorful claims so anyone reviewing the report could know what had taken place the best we could determine. i did not report to more responsible for indebted to the creditors. >> i stand for corrected and the want to move on to something else. matthew lee will be testifying later. he states that on may 16th he

sent a letter to lehman brothers' management raising issues about the scope of his responsibility. his letter is referenced in your report which is made public recently. the letter in your report makes no reference to 105. in his testimony he says he prepared his second letter that was sent to a lehman brothers officer sent outside the scope of his responsibility. that second letter identified repo 105. that second letter was not in your report. are you aware of this second communication that mr. lee mentioned in his testimony? >> let me double check. there was an e-mail sent by his

lawyer. there was then a discussion about that. we interviewed ernst and young who had in their notes the information imparted to them which included the information that there had been off-balance sheet transaction of $50 billion for the purpose of accomplishing the goal. >> there was this e-mail. is that referenced in your report? >> i will double check. >> at the time this e-mail was sent was mr. lee trying to negotiate a severance package. >> he was trying to negotiate a package. >> the second communication, do you have a copy of this report?

>> i will provide a copy. >> to your knowledge, who did mr. lee provide this e-mail to? >> his lawyer. >> i yield back. >> now of the gentleman from ohio, mr. wilson. >> thank you for coming in today, mr it:-- mr valukas. i only have five minutes so i hope to run through my question as quickly as i can. thomas baxter told you in no way was the idea to make lehman brothers a poster child for a moral absurd but do you believe that is not true? >> i don't know how to respond

to that question. i did not find any evidence. nothing was said to me to indicate somebody was deliberately trying to subvert lehman brothers's the ability to survive. we went through twenty-five million e-mail documents. there was nothing to suggest any of that. the interviews we had with individuals, nobody gave us any testimony suggesting that. >> what do you think was so much more stable about bear stearns than lehman brothers? >> in connection with lehman brothers the opportunity to lynn to of lehman brothers was dependent on collateral which was sufficient to justify the loans and they did not as of september 15th have that type of

collateral. >> i get the sense that the fed fog that something could be done but since they weren't regulator in charge they stepped back. how do you feel about that? >> i am not qualified to and to that question in terms of what we were trying to do. over that weekend there were efforts being made. there were efforts to salvage some aspect of lehman. i can't comment beyond that. >> in your report you cited many times the risks lehman was taking was far and above, in september of 2008.

>> they had in place a risk matrix that limited the amount of risk for individual transactions. they exceeded that 20 times to take on more. they simply raised the level of risk they were qualified to take. that is the way they addressed it. many were assets which became an anchor around them. >> i found a real contrast with some testimony given by mr. crookshank. is there an opportunity to compare those and match them up? >> i am not sure i can do that. i can read his testimony if that is what you are asking.

>> part of it was having business. what isn't applied is the fact that it was risky business and that is how we got the report, the failure. >> they made a decision to increasingly taken on these types of risks and. these were business decisions that they were entitled to make. they were escalated and people concurred about the risks they should take in making business judgment. what the regulators did not do was prevent them and say we prevented you from doing so and basically businessmen are permitted to make judgments how much risks they can take. in this situation it wasn't irrational. we concluded it was with in the business structure. >> thank you for your answers.

yield back the balance of my time. >> we now hear from the gentleman from texas. >> thank you. i missed some of your testimony. if we plowed some old ground apologize. the first question i have concerns the repo 105 brackets which i am sure you discussed in some detail. on page 13 i expressed the view of whether the technical matter is permissible to treat transactions which are bought all other measures financing. you don't have an opinion on whether or not as a pure technical matter this violated standards or not. >> we didn't express an opinion as to whether accounting for repo will 105 complied with that

aspect. we had a view that even if technically this was correct, it does not accurately reflect the entire balance sheet. it is not compliant. it should be a fair picture of the financial situation. some portion complies with management 40 and makes the balance sheet not comply. >> the technical phrase away it was used doesn't pass the test. [talking over each other] >> and passed this.

>> filing financial statements. >> in your opinion under the csc program, could the sec have compelled more complete disclosure of these repo 105 transactions. there seemed to be some confusion on the earlier panel. that -- capital against to increase their leverage and increase the capital. >> the focus was liquidity,

capital, whereas the concerns of what would take place in those areas and the systemic risk that might occur, i am presuming based on the testimony of chair person shapiro that they could have mandated certain changes and said these are risks to be disclosed or limited, and the right to step away from that. >> the portion of your testimony where it took in some respects. and the federal reserve, there were millions that were

uninformed trades. the passage at the fingertips, was that a fair assessment? >> those financial statements excluded the information that there were billions of dollars traded by the american public. >> the lack of authority to the sec to act upon these matters. it might have been a lack of confidence. some would maintain a lack of resources, lack of will but you have concluded it was not a lack of authority with respect to them compelling increased disclosure or lessening their leverage. >> there's not even -- i have no question about their authority and in terms of the leverage to

the extent of that i have no question about that. >> i am out of time. thank you, mr. chairman. >> the gentleman from colorado. >> thank you for your testimony today. thanks for putting this report together. i feel obligated to respond to a couple things mr. royce said about a bill pending on reforming wall street. following up, whether or not the regulations were in place it was clear that the sec in my opinion under the bush administration, no regulation was good regulation. that was a bush doctrine and based on my friends from the republican side, they don't want to do anything and want to allow

wall street to run amok. one of the things you said on page 1484 is a after graham leach bliley was passed there was a void in your language, the gray and liege bliley act created a void in the regulation of systemically important investment bank holding companies. neither the sec nor any other agency was given statutory authority to regulate. we are hopefully going to pass the reform bill that rains in wall street and these systemically large companies. mr. ruiz also was talking about enhanced bankruptcy of already. in connection with the lehman brothers case and i am not sure you were charged as an examiner but you said you could do no business anymore after september. just didn't have the liquidity.

what do you mean by that? >> what caused the failure was the lack of liquidity. they didn't have the cash resources, the money necessary to continue their business. they couldn't open up in the morning and trade. >> they are financial services. >> in order for them to survive they need to gather cash against collateral. >> what kind of bankruptcy are they in? >> chapter 11. >> are they doing business? or are they liquidating? >> they are liquidating at this point. >> one of the issues of this committee is whether or not a financial services organization should be allowed to reorganize or be liquidated as in chapter 7. republicans think they ought to reorganize.

democrats think they should be put out of their misery. we think they should be liquidated. one of the things we have seen here, did you look to see if there are any assets left for payment of creditors. we have some local governments that got hit hard by the lehman brothers bankruptcy. is there anything for them to collect against? >> i'm not a bankruptcy lawyer in this particular case, the debtors council. there were numerous claims in excess of those dollars.

>> federal reserve responsibility, one of the things you found and as -- the sec will provide the federal reserve on an ongoing basis. in this situation. >> and this observer with an actor? >> my view on it was they acquiesced in this area to an -- some of these other areas. they were not directing them to do things which were issues they should have been directed at.

>> nothing further. >> thank you very much. >> thank you for clearing up my confusion as to where we were going. >> i think you made it very clear. the çgentlelady from californ. >> mr. valukas, i want to thank you publicly for your testimony, your statement here could not be clearer. to who was responsible. what is a humorous to me, many statements before us are attempting to rewrite history. one of them is mr. fold, who said in his testimony that he had absolutely no recollection whatsoever of hearing about the transaction when he was ceo of

lehman. do you believe that statement to be true? >> i don't know that it is appropriate for me to comment on his credibility. we found in the report, we concluded in the report that a fact finder did know and acted upon information he knew or should have known. there was at least one witness who testified he discussed repo 105 transactions with him and the magnitude of those transactions were documents that were sent to him by e-mail and otherwise that reflected the repo 105 transactions in the balance sheet. there was great issue to lehman brothers. the two presidents acknowledged they knew about it. numerous other executives -- his position was he did not know about it. the action will determine whether that is credible.

>> you referenced in your statement, you found there were colorable claims against lehman brothers for violating regulation f k which required known trends involving capital resources specifically including off-balance sheet financing arrangements. >> yes. >> so lehman brothers did not. the financing arrangements -- >> we asked executives of lehman brothers, reviewing the financial statements which disclosed the 105 transactions.

>> are they potentially a dangerous instrument, it was leveraged less than it actually was. >> there's nothing inherently wrong with the transaction. it is no different than any other putting additional collateral and different jurisdiction that would qualify as true sale but it was a repo transaction and with the failure to disclose to the public and regulators what they were doing to shift assets off-balance sheet to affect leverage. inherently as a bad instrument, it is simply neutral. how it was used and not disclosed. >> do you think the issue would be resolved if all remote 105

transactions had to be disclosed? >> in the lehman situation there would be no reason to do that transaction if you were going to disclose. >> you also referenced that as part of their cfc being granted cfcs status they advise the sec that they had robust procedures to calculate risk limits as a, quote, binding constraint on risktaking that, quote, could not be exceeded under any circumstances. so they make this statement and go right ahead and violated by listing the limits on the risks they can take. >> that is correct and they fully disclose that to the sec. >> a fully disclosed it when we were granting csc status because of the statement and we are

going to violate the statement and they informed the sec which took no action. >> they stated in that position that it was a hard limit. they subsequently took the view that it was a soft limit and the sec's position was as long as they disclosed it to senior management that the sec and senior management reviewed it which they did, it would satisfy the sec. so when lehman brothers says they make full disclosure they did not do that. >> thank you, my time is expired. >> thank you for being here today. i very much appreciate your report. it is very useful in performing this sort of autopsy to find out more of what was going on and from our point of view the policy implications.

there are some real world implications of what happened. people in ohio, california and colorado and other states as well worked their lives, pension funds and ohio public employees, teachers, police officers. and pension funds invested in offerings and we learned there is a substantial decrease in value. can't sort it all out entirely yet but a substantial increase from september of 2007 to september of 2008. the high risk strategy may have been a business decision, high risk strategy certainly had consequences far beyond the lehman brothers board room. one of the things that i gleaned from your report was some of the

reasons you found some actions not to have violated or the colorful claim of violations or other standards was the standards articulated by the court. i was wondering if you would advise us to take action to legislation to tighten down those standards and put more responsibility on corporate officers, boards and others who are engaged in high risk gambling but not telling the people financing that that they are on their way to the casino. >> you are asking me a policy question that i am not qualified to answer. i am not comfortable answering that. i can say is this. lehman brothers had in place a process of reporting matters and we found matters were reported

and elevated to the board. the process that was in place was a good process. business judgment says if you have this process in place and making rational decisions you are permitted to do so. the issue wasn't necessarily just within lehman brothers so much as it might have been with regard to regulators who need to say to a business person that may be a business judgment but we are not prepared to let you make that judgment. i don't necessarily see that it is inherently an issue of internal regulation because they had those processes in place. >> they were followed in critical areas that they were not followed. some people, mr. lee, made known

their position in the company, engaged in behavior is that were far too risky and exceeding risk management. those people no longer work for the company. they spoke up to be removed from the company. or resigned from the company after speaking up. it has a chilling effect on the ability of other people to become whistle-blowers. any recommendations whether whistleborrowers should have additional protection so that they can speak up when behavior's are risky and make sure appropriate people know it, not just the next one up the chain but up aboard?

>> i believe it is critical in corporations that whistleblowers be heard at the highest levels. so that their concerns should be responded to so that the highest officers are held responsible if they don't respond. my own experience with some of the other -- it has gotten better in corporate america. significantly better. >> the risk-management function did not have a direct line to the board. also learned not only were they moved off balance sheets and presentations made to potential investors that made things look better than they actually were