SEC says action against Lehman Brothers is still under review

SEC chair Mary Schapiro was almost done with Congressional testimony earlier this week when one congressman had a final, tough question for her about the fall of Lehman Brothers - and what the SEC did and didn't know during the investment bank's final months before its bankruptcy.

"One last thing," New Jersey Congressman Scott Garrett asked Schapiro. "Where are those folks - the [SEC] regulators who were actually inside Lehman, not just in the days before, but for months before" Lehman's collapse in 2008.

This question was on Garrett's radar, he told Schapiro, because he'd received calls from his home district last week, after 60 Minutes aired the piece "The Case Against Lehman Brothers."

In that piece, Steve Kroft reported that the SEC - the Securities and Exchange Commission -- had staff inside Lehman monitoring the firm, but that these on-site regulators failed either to notice or to report signs of the bank's approaching demise. The Lehman bankruptcy started a chain reaction that led to the U.S. economy's collapse.

Garrett reported that after the 60 Minutes piece aired, constituents called his office to ask: "Should [the SEC] have caught something and didn't?"

In response, Schapiro told members of House financial service committee that although she wasn't at the SEC at the time, she believes that the agency's program that put regulators in Lehman "was wholly, inadequately funded and supported by the agency."

Said Schapiro: "There were a small handful of people - I believe less than a dozen - responsible for the five largest investment banks. . . . If you're going to take on the regulation of the largest banks in the world, you need more than a dozen people to do it and they need to be adequately trained and have authority."

Rep. Garrett also told Schapiro that his constituents wanted to know if the SEC was going to take any legal action against top executives at Lehman related to the firm's demise. "We [got] calls from the district ... [about] the lack of civil actions," Garrett said.

Our 60 Minutes story revealed that a court-ordered investigation of Lehman found sufficient cause for the government to pursue civil actions against some executives on issues including misuse of an accounting gimmick - Repo 105 -- to improve the company's financial appearance on quarterly reports. The author of that investigation told Steve Kroft, "This was a fraud."

Chairman Schapiro said she couldn't comment on litigation because the matter is "under investigation and analysis" and "still under review." She added that the legal issues are not "clear cut as it seems to be," which makes bringing cases "extremely difficult."

To watch a video of this April 25, 2012, hearing on SEC oversight, click here.