University of Utah Lehman Brothers Fraud case study Spencer Ricci U0760887 Accounting 2600-005 11/2/2016 JB Henriksen
The story of Lehman Brothers began in 1850 when Henry Lehman and his brothers, Emanuel and Mayer, opened up a general store. The company ultimately became large enough through growth and expansion to survive the ups and downs of the 1920’s and the Great Depression, two world wars, and the financial collapse in the 1970’s. The ultimate undoing for Lehman Brothers, however, was the decision to start lending in the subprime market. The chain of events that led to Lehman Brothers closing their doors in October of 2008 started in 2003 and 2004 with the acquisition of five mortgage companies who specialized in subprime and Alt-A loans. Unlike traditional loans where the borrower is sent through a screening process in order to verify ability to repay the loan and ensure likelihood of defaulting is low, Lehman Brothers was lending to people without the full documentation of borrowers’ financials. With the housing market booming, Lehman Brothers saw revenues soar as high as 56% in 2006. In February of 2007, Lehman Brothers saw stock hit a high of just over $86 per share. With stock prices so high, they capitalized the market by nearly $60 billion. At the same time, the default rate of subprime loans was the highest the industry had seen in seven years. On March 14, 2007, Lehman Brothers stock began to plummet. The realization set in that investors were losing faith in the company, and Lehman Brothers upper management responded by manipulating the books. They were worried because if people stopped investing in the company, they would have no other form of revenue to pay salaries and dividends. Out of pure desperation, Lehman Brothers attempted to deceive their investors and all of America.
- Fall '14
- Subprime mortgage crisis, Lehman Brothers