Three Years Later, Fuld Isn't Out of the Woods Yet

As the three-year anniversary of Lehman Brothers bankruptcy approaches, at least one law enforcement agency hasnt ended its investigation into the firms collapse, the FOX Business Network has learned.

The New York Attorney Generals office is ramping up its investigation of the Lehman Brothers September 2008 bankruptcy, according to people with direct knowledge of the matter. These people say the office is preparing to take testimony from witnesses about how top executives managed the firms finances, including their use of a controversial accounting technique known as Repo 105 in the months prior to the bankruptcy filing.

The move comes as senior Lehman executives, including former chief executive Dick Fuld, face a number of investor lawsuits over how they managed the firms pre-bankruptcy finances, but as of now, not a single regulatory charge has been filed.

As FOX Business was first to report, officials at the Securities and Exchange Commission and the Department of Justice are facing an uphill task in bringing either civil or criminal charges against top executives of the firm. People who know Fuld, for example, say the former Lehman CEO believes his biggest hurdle will be in dealing with investor lawsuits rather than federal regulatory probes.

But the New York Attorney Generals interest in the matter suggests that neither Fuld nor his senior management have completely avoided possible regulatory charges, though its unclear if the state AG intends to pursue such a case.

Still, what makes a possible NY AG case problematic for former Lehman executives is a state law known as the Martin Act, in which the burden of proof for filing civil or even criminal charges is lower than under the federal securities laws.

A spokesman for New York Attorney General Eric Schneiderman wouldnt deny the matter. So far, Schneidermans office has filed a civil charge against Lehmans auditor, Ernst & Young, which said that the firm aided Lehman in engaging in a massive accounting fraud.

Much of the New York AGs suit involves Ernst & Youngs approval of Lehmans use of Repo 105, which according to the civil complaint, helped disguise serious financial problems at the firm from investors in the months preceding the bankruptcy.

Lehmans bankruptcy, filed on September 15, 2008, sparked the wider collapse of the nations financial system in late 2008.

But now, attorneys for witnesses who have already given testimony to the state AGs office in the Ernst and Young case say their clients are being called back to provide more information, and the focus of the state AG has shifted more toward what senior Lehman executives did during those months leading up to the firms collapse, says one person with direct knowledge of the matter.

At least one witness slated to give testimony in the coming weeks expects to be asked about what motives senior Lehman executives had for using Repo 105, according to a person with direct knowledge of the matter.

In addition to the firms use of Repo 105, senior executives like former chief financial officer Erin Callan made positive comments about Lehman's financial condition just before the firm announced negative news. Callan was a close associate of Joe Gregory, Lehmans No. 2 executive during much of this time.

Attorneys for Fuld, Callan and Gregory didnt return calls for comment. Ernst & Young has said the state AGs charges are without merit.