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Or -- one of the big questions.
Is there any chance of criminal liability for any Lehman Brothers executives.
But that angle -- -- -- John -- law professor at Columbia.
University one of the -- noted securities lawyers in the United States John good to see again.
-- what what do you think any chance a criminal charges.
While it's always a chance but I sort of agree we currently but we draw a distinction in world -- the CEO and the CFO were indicted and convicted.
But they did everything from the auditors they capitalized line expenses we should have an expense and the auditors never knew there.
Here we have the auditors having signed off it was a judgment call a close judgment call may be very well -- improper call.
But that means civil liability rule ten B five litigation.
And the estate will be happy to settle with the auditors and -- these officers to the full extent of their insurance policies or more.
But I don't think the US attorney is going to want to indict someone who was relying upon him fully disclosed to transaction to is auditors.
-- John Charlie gets realized I mean I I agree with that but let's let's play -- little devil's advocate here US attorney.
Did some of that in the Enron case is correct I mean to that was there was a lot of did not just stealing.
And fastow was fast altered evidence but the you know Ken lay.
But there was this guy Dan Bailey from Merrill Lynch who engage in that that barge transaction.
You know it similar sort of stuff you know sign -- from auditors signed -- Remembered where.
Remember there they indicted the auditors because the auditors were destroyed documents yes Arthur Andersen got a car overturned.
But you felt that the process was fundamentally corrupt and didn't involved just to close judgment call and I don't think US attorneys today particularly after the Bear Stearns fiasco.
Are going to indict a judgment call unless they think they can show that the auditors were -- in acquiescence.
And the bears there's PS obviously -- -- -- case where they indicted to Bear Stearns hedge fund that is trying to say they lied to investors user emails.
And the jury look at those emails and said well you know it's kind of a judgment call we don't know if it's like they were still haven't had debates about you know risk and things of that nature.
Isn't that accurate.
I think that's probably how we're going to view of the Bear Stearns case.
And I think that it once bitten twice sharp I think prosecutors are gonna want a more of a smoking gun before they impact.
John what does the liability and what is the line and liability for negligence when you go from as -- incompetence and gross negligence to criminal negligence or criminal liability -- first -- civil liability.
And rule ten B five the standard is gross recklessness where you.
Basically aware that there was a substantial possibility that these results were going to mislead investors.
You don't have to be knowingly fraudulent but you have to engage in the kind of recklessness that shows a sort of indifference to the truth.
And not only will this produce litigation brought by the -- by the bankrupt company.
But it will be a road map and it will arm all of the plaintiffs' lawyers who are gonna sue on behalf of shareholders of Lehman and -- -- on behalf of bondholders.
Those people get very little in the bankruptcy but they -- and they'll use this 2200.
As a road map and -- -- convince judges not to grant summary judgment against the players because they'll sense that there is a lot of evidence to needs to be investigated.
So Dick -- I mean what are the chances are he he leaves you know he's going to be painless by.
I think there's some real danger that his liability here because the total liabilities in the billions will vastly exceed his officers and directors insurance.
So he does face a very difficult future litigation OK there's again a question we have the reason you incorporate.
Is -- individual protection rights of the actions of a corporation LLC whatever.
Cannot be traced down to you -- for individual liability when do we get over that point -- report -- -- rules are liable that he had the corporation your misses have been limited liability is to protect shareholders from liability for the firm's liabilities.
Officers who act on behalf of the firm.
Have liability for actions they did in their own right.
He signed off on these financial statements and if you believe the Examiner's report.
He knew that this was very aggressive use of accounting -- respect to these repo transactions.
Which were in effect presented as if they'd been sales but really -- -- short term overnight kinds of financing.
And the claim of the examiner is that this allowed Lehman to greatly changed their leverage ratios.
It appeared to be more conservatively financed that -- work.
And that enabled them to get more credit.
That will be the claim that all the bondholders will be bringing and they'll be dealing with financial statements that.
He signed to a fallen and that according to the bankruptcy examiner he was warned by middle level officials.
Were very very aggressive where we're going to cause a future problem for -- -- John -- spin this forward a little bit.
You know -- you know I'm sure you look at some of the stuff coming out of coming out of the senate right now in terms of financial regulation as -- primary with him yesterday and with the -- -- there's literally no -- and I.
And it -- a stop any of the stuff I don't see how it does I don't TV really addressing.
Well I think you stop fraught with the enforcement now with laws.
And I think we are seeing a new attitude at the FCC I congratulate Mary Schapiro and her new head of enforcement.
I think they mean to be very serious in redirecting enforcement and focusing on individuals not simply on the court.
Well let's -- that the SEC how long does it every -- you've kind of ruled out criminal charges which OK but the civil charge from the SEC.
Along -- before Dick Fuld Digg gets gets hit with a criminal charges or Aaron -- and all the rest of them.
Well I don't know whether -- not there already are pending SEC investigations and pending -- -- -- there are -- there I -- there is an SEC investigation I am sure that there is a major class action.
On behalf of both shareholders and bondholders and those plaintiffs attorneys have just received a huge and delightful windfall from their perspective.
Because they've got 2200 pages of documents that they didn't have to assemble themselves that they probably couldn't have because quite difficult to get discovery of securities litigation.
But with this evidence they're going to be able to spend -- -- -- -- motion to dismiss and that -- sooner -- later this case will settle for a very large number.
The John Coffey always a pleasure to get -- Bible inside thanks for coming on Fox Business -- partnership Charlie thank you as well.
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