Case study for shearson lehman brothers

Malfeasance[ edit ] A March report by the court-appointed examiner indicated that Lehman executives regularly used cosmetic accounting gimmicks at the end of each quarter to make its finances appear less shaky than they really were. This practice was a type of repurchase agreement that temporarily removed securities from the company's balance sheet. Lehman said that poor market conditions in the mortgage space "necessitated a substantial reduction in its resources and capacity in the subprime space". Lehman's loss was a result of having held on to large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages; whether Lehman did this because it was simply unable to sell the lower-rated bonds, or made a conscious decision to hold them, is unclear.

Case study for shearson lehman brothers

The Commission has authorized me to respond on its behalf to your letter of April 22, In that letter, you asked for the Commission's views on a federal securities law question arising from the BNS, Inc.

Your letter refers to an opinion and order in the above-captioned matter dated April 15,in which Your Honor preliminarily enjoined the tender offer, finding a high probability that Koppers will be successful in establishing at a trial on the merits that Shearson Lehman Brothers Holdings, Inc.

As your letter p. In view of that holding as to Shearson's co-bidder status under the Williams Act, your letter p. Whether Shearson Holdings' multi-faceted role in the takeover attempt and its simultaneous equity position in BNS, Inc.

In other words, can the Chinese Wall concept, Case study for shearson lehman brothers by the SEC in other contexts, be extended to the situation presented here?

In responding to that question, we will not address the correctness of the Court's ruling that Shearson is a co-bidder. As this Court recognized Opiniona multi-service firm like Shearson that provides investment banking services to a tender offeror is subject to certain potential conflicts of interest.

For example, there is a potential conflict between the firm's duty to the tender offeror to maintain the confidentiality of information concerning the tender offer and its duty, as a broker-dealer, to retail customers not to act contrary to available material information when making recommendations to them or managing their securities accounts.

The Commission believes that violations of the federal securities laws stemming from these conflicts can be avoided through the use of well-established preventive policies and procedures, such as Chinese Walls, restricted lists and watch lists.

In other words, the Commission believes that neither Shearson's significant involvement in the tender offer, including its equity interest in the offeror, nor even a status as a "co-bidder" under the Williams Act, as the Court found here, makes this case different from the traditional situation in which the investment firm acts as dealer-manager without taking an equity position.

Even without an equity position, the firm is subject to substantial potential conflicts of interest that are not different in principle from the conflicts that exist where it has an equity position. In both situations the firm must adopt and effectively implement appropriate preventive procedures.

The Commission has stated that, if multiple roles were prohibited, "the capital-raising capability of the industry and its ability to serve the public would be significantly weakened. Among the preventive procedures commonly used are Chinese Walls, restricted lists and watch lists.

A restricted list prohibits recommendations to customers relating to, or solicitation of customer orders to purchase or sell, a particular security, and prohibits trading for the firm's own account in the security.

Another type of restricted list enables the firm to prevent such activities as the issuance of a research recommendation concerning a security. Firms frequently use a watch list to monitor trading activity to determine whether any leaks in the Chinese Wall have occurred. The Commission has not designated the specific policies and procedures that should be adopted in particular circumstances.

That rule establishes a "disclose or abstain from trading" requirement for persons in possession of material information regarding a tender offer, when that person "knows or has reason to know" that the information is nonpublic and has been acquired from certain specified sources. Securities Exchange Act Rule 14e-3 a17 C.

However, recognizing that a blanket proscription would prevent multi-service financial institutions from engaging in their various roles, the Commission built into the rule an exception. Under that exception, no violation of Rule 14e-3 a occurs if an institution engaged in the securities business can show, first, that the individuals making investment decisions for a transaction about which the institution possesses confidential information did not know the information and, second, that the institution has implemented reasonable procedures to ensure that such individuals would not violate Rule 14e-3 a.

These procedures may include, but are not limited to: Although the Commission has not codified the use of preventive procedures as a means to avoid securities law liability except in Rule 14e-3, the principles also extend to actions under Section 10 b of the Securities Exchange Act and Rule 10b-5 thereunder.

The Commission has made clear that position in recent testimony before Congress on proposed insider trading legislation and did so previously in connection with the Insider Trading Sanctions Act of See Statement of David S.

Shad to Honorable Timothy E. Wirth June 29,reprinted in H. Thus, the Commission believes that Shearson's role in the tender offer does not create any conflicts of interest that cannot be remedied through the effective implementation of the types of policies and procedures described above.

Sources Used in Document:

Goelzer General Counsel cc:Not only was the Lehman Brothers bankruptcy the largest bankruptcy case in United States history, but it also came after repeated assurances from the company’s chief executives. K by Shearson Lehman Hutton () Most widely held works by Shearson Lehman Hutton Electric utilities: the case for consolidation part 1 by Edward J Tirello (Book).

Bates claimed that Shearson was liable for the acts of its alleged agent, Carl P. Nykaza, a broker at Shearson, who diverted approximately $70, of Bates' funds, for his own personal account.

Case study for shearson lehman brothers

A trial commenced, and at the conclusion of Bates' case, Shearson moved for judgment as a matter of law. Shearson Lehman Hutton Inc., F. 2d (CA2 ), In the present case, by contrast, we review a federal court's interpretation of this contract, and our interpretation accords with that of the only decisionmaker arguably entitled to deference--the arbitrator.

~ Lehman Brothers Quality ~.

Case study for shearson lehman brothers

~ Lehman Brothers Logo on The Shoulder Strap ~. This Water Resistant Carry All Is Perfect For The Traveler! For the person on the go. Impact of Lehman’s failure The collapse of Lehman Brothers revealed adversity in the operation of several organizations in the US and the world as a whole.

). & Investopedia. ) whilst hedge funds amounting to over $12 million were frozen in England as a .

Mastrobuono v. Shearson Lehman Hutton, Inc. Case Brief - Quimbee