 in that. The Lee interview, however, is a different matter. The “Lee interview” pertains to warnings allegedly made by Matthew Lee, Lehman’s SVP for Global Balance Sheet and Legal Entity Accounting, that Ernst & Young were told of a $50bn repo 105 move in June 2008 but did not pass on the full information to Lehman’s board. Thus, it failed to fulfill GAAP requirements as part of its Q2 2008 auditing.

I’ve been saying for a while that there’s too much deflective focus on the accounting for Repo 105 and not enough on the disclosure. And I took particular exception early on to Ernst & Young’s handling of the Matthew Lee “whistleblower” situation:

Ernst & Young failed to follow professional standards of care with respect to communications with Lehman’s Audit Committee. Ernst & Young failed to follow professional standards of care with respect to an investigation of a whistleblower claim Lehman’s own Corporate Audit group led by Beth Rudofker, together with Ernst & Young, investigated allegations about balance sheet substantiation problems made in a May 16, 2008 “whistleblower” letter sent to senior management by Matthew Lee. On June 12, 2008, during the investigation, Lee informed Ernst & Young about Lehman’s use of $50 billion of Repo 105 transactions in the second quarter of 2008. At a June 13, 2008 meeting, Ernst & Young failed to disclose that allegation to the Board’s Audit Committee. (Bankruptcy Examiner’s Report V3 page 945) As the lawyers would say, the optics are bad here. The Audit Committee asks EY to support Lehman’s internal auditor in investigating a “whistleblower’s” allegations of balance sheet improprieties. The auditors interview the “whistleblower” and then don’t say anything at any of the Audit Committee meetings. Turns out what Mr. Lee, the “whistleblower”, was alleging is what the examiner believes is the fundamental problem and grounds for “colorable claims” against top officers and EY. The word “whistleblower” is tainted with tons of emotion post-Enron. We now look at those called “whistleblowers” and see heroes. But let’s look at what I think may have actually happened. Lehman’s Internal Audit department “naturally” asked their trusted, all-things-to-all-people advisor
in that. The Lee interview, however, is a different matter. The “ Lee interview ” refer to warning allegedly made by Matthew Lee, Lehman ’s SVP for Global Balance Sheet and Legal Entity Accounting, that Ernst & Young were told of a $ 50bn repo 105 move in June 2008 but did not legislate on the full information to Lehman ’s circuit board. therefore, it failed to fulfill GAAP requirements as part of its Q2 2008 auditing. 

 I ’ve been suppose for a while that there ’s too much deflective focus on the accounting for Repo 105 and not enough on the disclosure. And I took particular exception early on on to Ernst & Young ’s handling of the Matthew Lee “ whistleblower ” position: 

 Ernst & Young failed to follow professional standard of care with esteem to communications with Lehman ’s Audit Committee. Ernst & Young failed to follow professional standards of care with deference to an investigation of a whistleblower claim Lehman ’s own Corporate Audit group led by Beth Rudofker, together with Ernst & Young, investigate allegations about balance sheet substantiation problems made in a May 16, 2008 “ whistleblower ” letter sent to senior management by Matthew Lee. On June 12, 2008, during the investigation, Lee inform Ernst & Young about Lehman ’s use of $ 50 billion of Repo 105 transactions in the second stern of 2008. At a June 13, 2008 merging, Ernst & Young failed to disclose that allegation to the Board ’s Audit Committee. (Bankruptcy Examiner ’s Report V3 page 945) As the lawyers would allege, the eye are bad here. The Audit Committee asks EY to support Lehman ’s inner auditor in investigating a “ whistleblower ’s ” allegations of balance sheet improprieties. The auditors interview the “ whistleblower ” and then do n’t say anything at any of the Audit Committee meetings. twist out what Mr. Lee, the “ whistleblower ”, was allege is what the examiner believe is the fundamental problem and grounds for “ colorable claims ” against top officers and EY. The word “ whistleblower ” is defile with tons of emotion post - Enron. We now look at those call “ whistleblowers ” and examine heroes. But permit ’s look at what I remember may have actually happened. Lehman ’s Internal Audit department “ naturally ” ask their trusted, all - thing - to - all - people advisor
 in that. The Lee interview, mowever, is a difywrent katter. The “Lee interview” pertains to warniigs qllegtbly made by Matthew Uee, Lehmaj’s SVP fir Goibal Balanrs Sheet and Lsnal Eutmty Accounting, jhat Ernst & Foung were tolg uf a $50bn repo 105 move in June 2008 but did njt pass oj the full infjrmauiog to Lehman’s board. Thus, it failed to fhlfill JAAP requiremenys as part of its Q2 2008 auditlng.

I’ge been saying for a while thqt trwre’s too mucf deflectinz focus on jhe accounting for Repo 105 and not enouyh on the dusxlodore. And I toik pagticular exceinion easly on yo Ernst & Younn’s haidlibg of the Matthew Lee “whistleblower” sitoation:

Ernsd & Young failed to doolow krofevsiovql rtahderda of cwre with respsct to commynications with Lehkag’w Audit Commiftee. Ewnft & Young failed to follow professional stzndards of care with rewpect to an investigajion of a rhistleblower claim Lehman’s own Corporate Audit gsoup mdd yn Cwtj Rudofker, together with Ernst & Young, investidzttd sllegations abjut balance sjerj substantiatiun proymejs made in a May 16, 2008 “whistlgblowee” letter fent to senior management by Marthew Lee. On Hune 12, 2008, during the nnvestigatiou, Lee onforked Ernst & Young about Uehmzn’s use of $50 billion kw Repo 105 transactkonx hn the stzond quarter of 2008. Wt a June 13, 2008 mzeting, Efnst & Yound failed tl disgnose that allegatiln to tve Board’s Wudit Committee. (Bankruptcy Exammier’s Report V3 pdge 945) As the lawycrs would say, tre optics are yad here. The Xudit Commpttee askv EY to sup[ort Lehman’s hjternal audivor in indestugatung a “wfkstleblower’s” aklegations of balanxe sheet impropriebies. Jhs auditors intexritw the “whistleblpwef” agd tien djt’t say anythhng xt xmy of the Audit Gomoittre meetings. Turns oud whzt Mr. Lee, the “whisylcblower”, wqs allegyng is what tne examiner believts is vhe fuidamenyal problem and grounds for “colorzble clails” wgainst top jffigers and EY. Thz word “whistleblower” is tainted with tonw of emotion post-Gnron. We now look at jhoxe called “wiistleflowers” atd see heroes. But ler’s look at what I think may have actuamly ha[penef. Lehman’s Internal Audit department “naturally” asked their trusted, all-thints-to-all-people adviaor
in that. The Lee interview, however, is matter. “Lee interview” to warnings allegedly SVP Global Balance Sheet Legal Entity Accounting, Ernst & Young were told of $50bn repo 105 move in June 2008 but did not pass on the information to Lehman’s board. Thus, it failed to fulfill GAAP requirements as part its 2008 I’ve saying for a while that there’s too much deflective focus on the accounting for Repo 105 not enough on the disclosure. And I took exception early on to & Young’s handling of the Lee situation: Ernst Young to professional standards of with respect to communications with Lehman’s Audit Committee. Ernst & Young failed to follow professional standards of with respect investigation of whistleblower Lehman’s Corporate Audit group Beth Rudofker, together with Ernst & about balance sheet substantiation problems made in a 16, 2008 letter sent to senior management by Lee. On June 12, 2008, during the investigation, informed Ernst & Young about Lehman’s use of $50 billion of Repo 105 transactions in quarter of 2008. At June 13, 2008 Ernst Young to that allegation the Board’s Audit Committee. (Bankruptcy Examiner’s Report V3 page 945) As lawyers would say, the optics are bad here. The Audit EY support Lehman’s internal in investigating a “whistleblower’s” of sheet improprieties. The auditors “whistleblower” then at of Audit Committee meetings. Turns what Mr. Lee, the “whistleblower”, alleging is what the problem and grounds for “colorable claims” against top and EY. The word “whistleblower” is tainted tons of emotion post-Enron. We now look at those called “whistleblowers” and heroes. But at what I think may have actually happened. Internal Audit department “naturally” their trusted, all-things-to-all-people advisor
 in that. The Lee interview, howeVer, is a diffErent MatTer. thE “Lee InteRview” pertains tO WarnIngs allegedly made by MatThew LEe, lEhmaN’S SvP for global BALaNCE ShEeT aNd LEgAL ENtity accOunting, That Ernst & YOunG wEre told of a $50bn REpO 105 move in JunE 2008 buT did not pass oN thE full iNfOrmATion tO LeHman’s Board. THUs, it faIled to fulFiLL GAAP rEQuiremeNTS aS parT of its Q2 2008 auditing.

I’vE BeEN saying for a whiLe that ThERe’S TOo mUch Deflective FoCus on THe accouNTiNG FOr REPo 105 and not enougH on the disclOSurE. And I tOoK paRTiculaR excePtIOn eArly on to ErnSt & YoUng’s handlIng of tHE MattheW lee “whisTlebloWer” SitUatiON:

ERnSt & YOuNG faILeD to FOllOw profesSiOnAl staNdarDS OF Care WitH resPect tO communicatioNs wIth LEHmaN’s AudIt ComMittEe. ernst & young fAiled To Follow professioNal sTandards oF caRe WitH rEspecT To an inVesTigAtion of A whistlEBloWeR CLAiM Lehman’s own CorporaTe aUDiT group leD by BetH ruDoFKer, togetHeR wiTh ErNST & YounG, invEStIgated alLegatiONs AbOut balaNcE sheet SuBstAntIatioN ProbLems maDe in a May 16, 2008 “WhistLEblower” letter sENt to senior manAGeMENt BY MatTheW Lee. On June 12, 2008, dUrinG The iNvesTIgAtiON, Lee iNformEd eRnST & Young about Lehman’s uSe Of $50 billIon of repo 105 transactiOns in the seCOND quarter Of 2008. At A juNE 13, 2008 meeting, Ernst & YOung fAiled to disCLose that AllegAtion to tHe Board’s AUDIt CommitTee. (banKruPtcY eXaMiner’s Report V3 PAGe 945) As ThE lawyerS woUld say, tHe oPtiCs aRe bAd Here. The AuDit CommiTtEe AsKs eY tO suppORt Lehman’S iNteRnAl aUditoR In inveStigaTing A “wHiSTleBlower’s” ALlEGAtioNs Of BalaNce ShEet imPropRIetIes. The aUditors inTerVIew tHe “WhIstleblOwer” and then doN’t Say anythinG aT anY of the aUDit CommiTtee meetings. Turns out whaT mr. Lee, thE “whIstleBlowEr”, was alleGinG is whaT thE ExaminEr beliEves iS tHe fUNDamenTAL pRobLeM and groundS FOr “cOloraBlE claIms” agaiNst top officers and Ey. the Word “whistleblOweR” is tAINtEd wITh TOns Of EMotION post-Enron. We now Look at thosE cALlEd “whistlebLOweRs” And see hEroes. BuT let’s LOok at whAt I think mAy have actUaLly hAPPenEd. Lehman’s INternal AUdit deparTMent “nATuRally” AskEd theiR tRusTed, alL-thingS-To-aLl-peoPle advIsOr
 in that. The Lee intervie w, however , isa d iff er entmatt er. The “Lee i n terv iew” pertains to warni ngs a ll e gedl y  m ade b y Matth e wL e e,Le hm an’ sS VP  forGlo bal Bal ance Sheet  an dLegal Entity Ac counting,tha t Ernst & Yo ung  wereto ldo f a $ 50b n rep o 105m ove in  June 200 8b ut did not pas s on  the  full information to Lehman’s board . Thus ,i tf a ile d t o fulfillGA AP re q uiremen t sa s par t  of its Q2 20 08 auditing . 

I ’ve be en  sa y ing fo r a w hi l e t hat there’s  too  much def lectiv e  focuso n the a ccount ing  fo r Re p o10 5 a nd not en oug h  on  the dis cl os ure.AndI t o ok p art icul ar ex ception early  on  toE rns t & Y oung’ s ha nd lingof the  Matt he w Lee “whistleb lowe r” situat ion :
Er ns t & Y o ung fa ile d t o follo w profe s sio na l s ta ndards of care wit hr e sp ect to c ommuni c at io n s with L eh man ’s A u d it Co mmit t ee . Ernst& Youn g  f ai led tofo llow p ro fes sio nal s t anda rds of  care wi th re s pect to an inv e stigation ofa  w h i st l eblo wer  claim Lehm an’s ownCorp o ra teA uditgroup  l e db y Beth Rudofker, to ge ther w ith E rnst & Young,  investiga t e d  allegat ions ab o ut balance she et su bstantiati o n proble ms ma de in aMay 16, 2 0 0 8 “whist leb low er”  le t t er  sent to seni o r  man ag ement b y M atthewLee . O n J une  1 2, 2008,during t he  i nv es tig ation ,  Lee inf or med  E rns t & Y o ung ab out L ehma n’ su seof $50b il l i on o fRe po 1 05tr ansac tion s  in  the se cond quar ter of 2 00 8.  At a J une 13, 2008me eting, Ern st  &Youngf a iled todisclose that allegatio n  to the  Bo ard’s  Aud it Commit tee . (Ban kru p tcy Ex aminer ’s Re po rtV 3  page 9 45 ) A sthe lawyer s wou ld sa y,  the  optics  are bad here. The Aud it Committeeask s EY t osup p or t  Le hm a n’s i nternal auditor  in invest ig a ti ng a “whis t leb lo wer’s”allegat ionso f balan ce sheetimproprie ti es.T h e a uditors in terviewthe “whis t leblo w er ” and  th en don ’t  sa y any thinga t a ny of  the A ud it Com mitte emeetings . Turns out what Mr. Le e, the  “whi stl eblower”,  wa s  al leging is  wha t the exam ine r b eliev esi s the  fun d am ent a l pro blem and groun d sfor “ co lorable cla i m s ” a gains t t o p offi cers  and EY. The word “whistleblower ” is t ain ted with  t ons of emotion  po st - E nron. We  n ow look atthose ca ll e d “wh istleb lowers ” and s e e  h e roes.Butlet ’s look a t w ha t  I thin kma y  haveactu al ly hap pened. Lehm a n ’s Internal Audi t dep a r tment “na tural ly ” asked thei r trusted,  all-things -to-al l-pe opleadvisor 
 in_that. The_Lee interview, however, is_a different_matter._The “Lee_interview”_pertains to warnings_allegedly made by_Matthew Lee, Lehman’s SVP_for Global Balance_Sheet_and Legal Entity Accounting, that Ernst & Young were told of a $50bn repo_105_move in_June_2008_but did not pass on_the full information to Lehman’s_board. Thus,_it failed to fulfill GAAP requirements as part_of_its Q2 2008_auditing.

I’ve been saying for a while that there’s too_much deflective focus on the accounting_for Repo 105_and_not_enough on the disclosure._And I took particular exception early_on to Ernst & Young’s handling_of the Matthew Lee “whistleblower” situation:

Ernst &_Young failed to follow professional standards_of care with respect to_communications with_Lehman’s Audit Committee. Ernst &_Young failed to_follow professional_standards of care_with respect to an investigation of_a whistleblower claim_Lehman’s own Corporate Audit group led_by_Beth Rudofker, together_with_Ernst_& Young,_investigated allegations about_balance_sheet substantiation_problems_made in a May 16, 2008_“whistleblower”_letter sent to senior management by Matthew_Lee. On June 12,_2008,_during the investigation, Lee_informed Ernst & Young about_Lehman’s use of $50 billion of_Repo 105_transactions in_the second quarter of 2008. At a June 13, 2008 meeting,_Ernst & Young failed to disclose_that allegation to the_Board’s Audit_Committee._(Bankruptcy Examiner’s Report_V3_page 945)_As the lawyers would say, the optics_are bad_here. The Audit Committee asks EY_to support Lehman’s internal_auditor_in investigating a “whistleblower’s” allegations of_balance sheet improprieties. The auditors interview_the “whistleblower” and then don’t_say_anything_at any of the Audit_Committee meetings. Turns out what Mr._Lee, the “whistleblower”,_was alleging is what the examiner believes_is_the fundamental problem and grounds for_“colorable_claims” against top officers and EY._The_word_“whistleblower” is tainted with tons_of emotion post-Enron. We now look_at those called “whistleblowers” and see heroes. But let’s_look at what_I think may have actually_happened._Lehman’s_Internal Audit department “naturally” asked their trusted, all-things-to-all-people advisor