Callan, Fuld Face Subpoenas

The former CFO and CEO of Lehman Brothers are under investigation for misleading investors.
Alan RappeportOctober 20, 2008

Former Lehman Brothers CFO Erin Callan, along ex-CEO Richard Fuld Jr. and other executives from the collapsed investment bank, are facing subpoenas as federal prosecutors investigate whether the bank misled investors in the run-up to its bankruptcy last month.

According to a report in The New York Times, Callan and Fuld were among at least 12 parties who were issued subpoenas by prosecutors in Brooklyn, Manhattan, and New Jersey. Prosecutors are investigating whether Lehman misled investors while seeking a $6 billion cash infusion in June; whether it incorrectly valued its commercial real estate holdings; and they are looking into its comments from a conference call on September 10.

A spokesperson for the U.S. Department of Justice office for the Southern District of New York would not confirm or deny that any subpoenas were issued relating to Lehman Brothers. A spokesperson for Robert Cleary, Callan’s attorney with Proskauer Rose LLP, also would not comment on any legal action against his client. Cleary is a former U.S. attorney and was lead prosecutor in the Unabomber trial.

After being demoted from her post as finance chief earlier this year, Callan left Lehman last July to take a job at Credit Suisse. She is now a managing director and runs Credit Suisse’s hedge-fund business from New York. Before becoming Lehman’s CFO in December 2007 she was head of hedge-fund activity at the bank, where she worked for 13 years. In June she returned to its investment banking division.

Callan was under pressure after the bank suffered a $2.8 billion loss in the second quarter of this year. Her reputation was also tainted by a public sparring match with hedge-fund activist David Einhorn. She fended off criticism by Einhorn, founder of Greenlight Capital. He occupies a short position on Lehman’s stock and recently morphed from a reclusive hedge fund manager to a media-savvy specialist. He challenged Callan to be more forthright about the investment-banking giant’s balance-sheet risks and how the firm values its assets.

Lehman Brothers held $613 billion of debt as of May 31, making its bankruptcy the biggest in history.