Lehman's CEO to testify

Lehman Brothers' former CEO is being called to testify about the investment bank's collapse. CNN's Ali Velshi reports.

We are learning more now about the breaking news story we told you just a few moments ago that Lehman Brothers’ former CEO has been called to testify about the investment bank’s spectacular collapse last, last month. Let’s go now to correspondent Ali Velshi in New York for more details no this. So Ali, what have you been able to learn about this.

Ralitsa, this is a major development in the effort to understand how the US financial system suddenly spiraled out of control, starting on September 15th with the collapse of Lehman Brothers. That was the biggest bankruptcy filing in US history. Now we have learnt the source directly involved with, the bankruptcy filing has conformed to CNN that former CEO, the CEO in place at the time of the bankruptcy D. Fuld is one of the people who has been called to testify in the Grand Jury, that is part of plus three investigations going on, two in New York, and one in the State of New Jersey. But federal investigations into what led to the collapse of Lehman Brothers.

Now this is an interesting development because prior to the Enron and WorldCom scandals, there, it wasn’t necessary a federal offense to materially mislead investors but the// bill made that a material offense. So that meant that financial statement had to be signed up by the CFO and the CEO of the company and they had to attach to the fact that they knew what was in them and that they knew that information to be true.

Well just days before the collapse of Lehman Brothers on Sept. 10th. There was a conference call with the company’s executives and analysts and investors and the investigations may be centering on whether the information that was disseminated at that point was accurate; whether anybody knew anything else; whether the executives of the company or those who had been subpoenaed had other information. Now we don’t the details of the investigation or the grand jury, but the grand jury in the United States is called to investigate whether federal crimes were committed in the particular incidence. And that is what we understand D. Fuld has to be subpoenaed to testify at.

Yeah. That’s could possibly be huge. Ali, let’s look at the other side of the story. Uh, when he was testified in front of Congress, he pointed the finger at the government’s inaction. He said that had caused it.

Yeah, look, this is what..this is going to be seen as the turning point in this economic crisis. Until then we knew the United States was in a recession; we knew that the investment banks were having the trouble raising money and the federal government has stepped in a number of cases including that of Bear Stearns, try to guarantee purchase, guarantee the finance of these companies. That the federal government went into that weekend meeting prior to Sept. 15th with the understanding that they were going to try and find a buyer for Lehman Brothers and they emerged. You may recall what Bank of America which is one of the potential buyers ending up buying Merrill Lynch but nobody’s buying the Lehman Brothers. And the collapse of Lehman Brothers led us to this credit freeze because we realize that somebody’s company’s of no value, or will have no value even to the lowest bidder.

So we have to understand what happened there. Was there information the public didn’t know? Uh, it seems very strange that they pointed the finger at the government. But what we do know is regulatory oversight in the United States did seem to not be in order. We have more than a dozen regulatory agencies dealing with financial institutions in the United States. I liken that / of having a regulatory system like a highway system that was built for cars that go 25 miles an hour when all your cars can go 100 miles an hour. There’s definitely something to be said for government oversight but I think this investigation’s gonna look very specifically at what executives of Lehman knew and that they told the investors.