British law firm cleared way for Lehman cover-up

The long-awaited report, which cost $38 million to produce, is likely to give ammunition to shareholders suing Lehman as well as to government prosecutors.

Compiled with the help of a team of 70 lawyers, it is based on more than 250 interviews, five million documents and 26 million pages of company e-mails.A 2,200-page report into the collapse of the 158-year old institution has uncovered evidence that Lehman used “balance sheet manipulation” in the form of an accounting practice known as “Repo 105”, without telling investors or regulators, that made the business appear healthier.

Lehman initially had sought legal clearance from an American law firm to permit Repo 105 transactions but was denied. It then sought advice from Linklaters in London, which said that the deals were possible under English law.

The Repo 105 practice had been in use by Lehmans since 2001 but in the bank’s final two years it was regularly used to alter public perceptions of the bank’s balance sheet.