Lehman Brothers chief executive faces lawmakers

October 07 12:05:01 PM, LA Times

Rep. Henry Waxman of Los Angeles grills Richard Fuld about compensation he acquired while the 128-year-old investment bank foundered. WASHINGTON -- The chief executive of Lehman Brothers Holding Inc., whose bankruptcy filing last month dramatically escalated the Wall Street financial crisis, faced angry lawmakers Monday and defended his leadership and the millions of dollars he and other executives made as the company's troubles mounted.

Although taking "full responsibility" for the actions that led to the nation's largest bankruptcy ever, Richard Fuld told the House Oversight and Government Reform Committee that his company was overwhelmed by a "financial tsunami" caused by a series of "destabilizing factors," including lack of investor confidence, short-selling, credit downgrades and rumors.

  Full coverage: Financial system in... In D.C., few evade blame for financial crisis "Based on the information that we had at the time, I believed that these decisions and actions were both prudent and appropriate," Fuld said of his leadership of Lehman. "None of us ever gets the opportunity to turn back the clock. But with the benefit of hindsight, would I have done things differently? Yes, I would have."

Lehman filed for bankruptcy after Treasury Secretary Henry Paulson and other Bush administration officials decided not to try to save the 128-year-old investment bank.

But while Fuld said he and company executives did everything they could to protect company, committee chairman, Rep. Henry Waxman (D-Los Angeles), slammed Fuld for earning $484 million in salary, bonuses and stock sales since 2000.

"You're company is now bankrupt, our economy is now in a state of crisis, but you get to keep $480 million," Waxman said, displaying yearly compensation figures on large TV screens in the hearing room. "I have a very basic question for you. Is this fair?"

Fuld said the figures were not accurate and he probably received "a little bit less than $250 million, still a large number, though."

Waxman ticked off some of Fuld's other personal assets -- a $14 million oceanfront home in Florida, a vacation home in Sun Valley, Idaho, an art collection "filled with million-dollar paintings."

"It seems that the system worked for you, but it didn't seem to work for the rest of the country and the taxpayers who now have to pay up to $700 billion to bailout our economy," Waxman said. "We can't continue to have a system where Wall Street executives privatize all the gains and then socialize all the losses."

Monday's hearing was the first of at least five Waxman plans to hold on the causes of the financial crisis, which led to the Wall Street bailout plan passed by Congress last week. Republicans criticized Waxman for not focusing first on the problems that led to the government takeover of Fannie Mae and Freddie Mac.

House Minority Leader John Boehner derided Monday's Lehman Brothers hearing as "political theater" designed to divert attention from the role of Fannie and Freddie, the government-sponsored mortgage lenders that he charged Democrats protected for years from Republican reform attempts.

Waxman said that his committee is looking into the problems on Fannie and Freddie and may hold hearings on them as well. He noted that Republicans controlled Congress from 1995 to 2007.

The partisan finger-pointing erupted as lawmakers seek to lay blame for the financial crisis. Waxman focused first on Lehman Brothers, and released 24 pages of internal company e-mails and other documents that he said undermined Fuld's "contention that Lehman was overwhelmed by forces outside its control."

The documents showed the company's executives "continued to squander millions on executive compensation" even as Fuld was seeking a federal bailout, Waxman said. Between 2004 and 2007, Lehman paid $16 billion in bonuses, with Fuld receiving $30 million in case bonuses and more than $260 million in total compensation during that time.

One e-mail exchange in June, Fuld criticized a suggestion from Neuberger Berman, the company's money management subsidiary, that Lehman management should forego bonuses this year for a "significant expense reduction" as well as to "send a strong message to both employees and investors that management is not shirking accountability for recent performance."

Waxman cited another document showing Lehman recommending to its compensation committee four days before the bankruptcy filing that three departing executives receive more than $20 million in "special payments."

"In other words, even as Mr. Fuld was pleading with Secretary Paulson for a federal rescue, Lehman continued to squander millions on executive compensation," Waxman said.

Fuld said he had more of a stake than anybody in the company's future, noting he never sold the vast majority of his Lehman Brothers stock and still owned 10 million shares when the company filed for bankruptcy.

"I firmly believed we were going to turn back to profitability," he said.

jim.puzzanghera@latimes.com



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