Failure or fraud

A flood of multi-million dollar lawsuits against banks like Lehman Brothers is beginning to shed light into some of the darkest corners of international finance.

The BBC World Service's Michael Robinson investigates cases against banks Lehman Brothers, Merrill Lynch, Countrywide and others, and what they reveal about the current financial disaster.

Some cases claim to show how well-known banks protected their profits by deceiving investors. Others accuse top bank executives of using insider information to sell personal shareholdings before bad news about their bank was revealed.

Earlier this month, Dick Fuld, CEO of Lehman Brothers faced members of Congress fired up by widespread anger against bankers among their constituents.

Congress committee member: "Your company is now bankrupt, our economy is in a state of crisis, but you get to keep $480 million dollars -- I have a very basic question for you: is this fair?"

Fuld told the committee he hadn't made quite that much money: "Mr. Chairman, I think for the years you're talking about here I believe my cash compensation was close to $60 million ... and I believe the amount that I took out of the company over and above that was, I believe, a little bit less than $250 million..."

Dean Morris is the chief complainant in a lawsuit against Lehmans, accusing the bank of deliberately misleading investors: "If there has been any alleged wrongdoing by Dick Fuld or any of the directors in the company, I would hope that they would go through a legal process to have them penalized ..."

It's what happened in the weekend that Lehmans came crashing down that is really most startling. On the Saturday morning as the bank was struggling to survive, its losses were assessed at around $30 billion; by the Sunday night, the same weekend, its losses were assessed at $80 billion, $50 billion more, and the bank was forced into bankruptcy. But that huge difference, the assessment of how deeply Lehmans was in the hole, is the most graphic example of how little anyone really seemed to know about what was going on inside the bank.

Fuld told skeptical politicians that he was in no way to blame for his bank's collapse.

But to the lawyers now targeting Lehmans, Dick Fuld's denials about misleading investors don't wash. They say fuzzy accounting is part of a pattern going back two years, with top executives time and again painting a falsely rosy picture of Lehmans' financial condition.

Legal papers claim that the system that should independently rate the risk of investments was compromised.

While policymakers struggle to prevent a rerun of the Great Depression of the 1930s, these cases help highlight what some now call the greatest failure of regulation in modern financial history.

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