Whistleblower in Lehman fight

MATTHEW Lee, the man who blew the whistle on Lehman Brothers’ controversial accounting techniques, is in a legal dispute with the collapsed firm.

City A.M. has learned that Lee, who was made redundant from Lehman just six days after tipping off accountants Ernst & Young (E&Y) about his concerns, has filed a number of claims in the United States Bankruptcy Court, including a claim for $500,000 (£328,231) in unpaid severance pay.

Lee, who was senior vice president of the bank’s financial control division, was served termination notice on 18 June 2008 in a letter signed by managing director Jack Johnson.

The letter told Lee that he would serve a “transition period” ending 30 November 2008 and during that time he would “receive his current base salary and certain benefits coverage”.

Lee alleges that payments stopped 1 November and that Lehman Brothers Holdings (LBHI) were “in breach of the severance contract”.

Documents obtained by City A.M. also show that Lee took out three additional sub-claims, including assertions that a representative at the bank gave him the green light to purchase Lehman stock on 12 September, days before the historical chapter 11 filing.

LBHI declined to comment on the legal action taken against the bank or on the nature of Lee’s dismissal.

Details of Lee’s involvement in the recent controversy emerged last week after the release of a court appointed report into the failings of the bank.

It said he had notified management in May 2008 of the “Repo 105” transactions in a letter alleging the accounting improprieties.

The report said: “Ernst & Young was advised by Lee on 12 June 2008 that Lehman used $50bn of Repo 105 transactions to temporarily move assets off balance sheet at quarter end.”

The report also said that there was credible evidence linking chief executive Dick Fuld and three other directors to a breach of their fiduciary duties.

Both administrators Alvarez and Marsall and PricewaterhouseCoopers declined to comment.
E&Y said: “Lehman conducted an investigation of the allegations in the employee’s May 2008 letter. In July 2008, Lehman’s management reported to the Audit Committee and concluded the allegations were unfounded and there were no material issues identified.”

City A.M. contacted Lee and his lawyer Erwin Shustak but neither were available for comment.

The Wall Street Journal revealed the timing of Lee’s redundancy yesterday.