World Business

SEC chief pledges better oversight of banks

(Agencies)
Updated: 2010-04-21 09:59

Michael Lee, a former Lehman vice president, testified that he tried to alert Lehman managers to concerns he had about Lehman's accounting. He sent a letter in May 2008 to top executives. After that, he said, "somebody came into my office, pulled me out and fired me on the spot."

The bankruptcy examiner, Anton Valukas, criticized the company and the SEC.

"Although the public had a right to expect that firms like Lehman were being regulated in a meaningful way, in reality, they were not," Valukas told lawmakers. Regulators, he said, missed opportunities to alter Lehman's conduct "before its situation had reached the point of no return."

In his report last month, Valukas disclosed that Lehman put together complex transactions that allowed the firm to sell securities - mainly those made up of mortgages - at the end of a quarter. That wiped them off its balance sheet, avoiding the scrutiny of regulators and shareholders. Then the bank quickly repurchased them - hence the term "repo."

Valukas' report reached no conclusion on whether executives violated securities laws. But it did suggest there may be enough evidence to support civil damages in a trial.

Two lawmakers testified at the hearing that Lehman's meltdown cost school districts, local governments and hospitals millions, forcing them to make cutbacks.

Schapiro said the agency didn't do enough to oversee the five largest investment banks, even though it had authority over them since 2004. That oversight program, she said, did not have enough resources.

Going forward, "the SEC is determined to become a more effective regulator," she told lawmakers. "We are determined to use the lessons of that experience to be more effective"

Her comments come days after the SEC filed civil fraud charges against Goldman Sachs, alleging it withheld information in a complex transaction involving risky mortgage securities.

Federal Reserve Chairman Ben Bernanke testified at the hearing that the central bank wasn't aware that Lehman used the accounting move. And even if the Fed did know, it wouldn't have changed the Fed's view that the company was in bad financial shape, he said.

Although the SEC was Lehman's chief regulator, the Fed began to monitor the firm after trouble surfaced in the financial industry.

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