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Bachus: Reporting Shows Further Evidence Fed Was Aware of Fraudulent Accounting Activities


WASHINGTON, Mar 19 -

-Financial Services Committee Ranking Member Spencer Bachus today said Congress must immediately address what the Federal Reserve knew regarding Lehman Brothers' accounting activities, and when they knew it, as reports cite further evidence that federal regulators were made aware of illegal activity and failed to act.

"As each day passes, we're finding more troubling allegations that the regulators knew or should have known about Lehman Brothers' fraudulent accounting activity," Bachus said.  "It appears they either overlooked it, or were complicit in hiding it from Wall Street and the taxpaying public.  These critical questions need to be asked - and answered - quickly."

Reports in today's Financial Times reveal claims that former Merrill Lynch officials contacted both the SEC and the New York Federal Reserve with concerns about Lehman's balance sheet calculations in March 2008, some six months before the firm's failure.

"As Democrats consider sweeping regulatory reform giving the Fed further powers over Wall Street and extending the safety net to include the "too big to fail" banks, we need to know what went wrong, what the regulators knew and when they knew it, and what lessons we can learn before further empowering the very same regulators who failed us during the last crisis," Bachus said.   

Earlier this week Bachus requested a hearing on the revelations of fraudulent accounting activity reported by the Lehman Brothers' court appointed bankruptcy examiner, and Chairman Barney Frank responded affirmatively.  A hearing has yet to be scheduled. 

At a hearing Wednesday of this week, Bachus asked Fed Chairman Ben Bernanke if the New York Fed  was aware of Lehman Brothers' use of the accounting gimmick "Repo 105".  Bernanke responded that they did not have that information.  Click here to view video of the questioning from the hearing.