Mercury Rising 鳯女

Politics, life, and other things that matter

“You can’t cheat an honest (Leh)man”

Posted by Charles II on March 31, 2008

(with apologies to WC Fields). “You can’t cheat an honest man” rings a bell in what could turn into yet another major chapter in the credit crisis:

The American investment bank Lehman Brothers is to sue Japan’s fifth largest trading firm, Marubeni, over an alleged $350m (£176m) fraud involving two of the company’s employees.

The alleged fraud relates to a loan which Lehman Brothers gave to Asclepius, a subsidiary of the quoted Japanese biotechnology company LTT Bio-Pharma. The loan was secured by certificates from Marubeni, one of Japan’s general trading companies, which trades in everything from chemicals to food to energy. Two weeks ago, Asclepius filed for bankruptcy, leaving its creditors – including Lehman Brothers – out of pocket.

Lehman is now claiming that as Marubeni secured the loan, it should now repay it. However, the Japanese company claims that the seals on the certificates granted by its employees were forged, insisting that the loans were not in fact approved by Marubeni. Furthermore, it claims that the two individuals who allegedly forged the certificates were merely contractors, not directly employed by Marubeni.

“We have nothing to do with the fraudulent acts, and we have no obligation to cover any repayment requests,” Marubeni said in a statement.

And this is not the only fraud supposedly perpetrated by this happy pair of rogue contractors.  Unfortunately for Lehman, it has already become a target for the shorts, so this could cause another run on the stock:

Elsewhere, US regulators have begun investigating whether traders spread false rumours about the financial security of Lehman Brothers after the near-collapse and rescue of Bear Sterns this month. Shares in Lehman Brothers have fallen by more than a quarter in March, amid market speculation that it may become the next corporate casualty of the credit crunch. On one day in mid-March, the stock almost halved, prompting the bank to issue a statement reassuring the market. It recouped most of its losses the next day.

Marubeni is as politically wired as a Christmas tree. I would be very surprised to see Lehman get its day in court anytime soon, though from the facts presented by The Independent, it sounds as if they might well prevail if they do get to argue their case. It’s not exactly plausible that anyone would lend $350M without shaking the deal down.

I shouldn’t be feeling this much schadenfreude in what could cause a terminal meltdown of the shaky financial system. But these gentlemen of high finance really do deserve what’s happening to them.

2 Responses to ““You can’t cheat an honest (Leh)man””

  1. jo6pac said

    I think it’s impossible to tell who cheating who here.

  2. Charles II said

    My point precisely, Jo. I wouldn’t be surprised if they were both cheating.

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