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Senator Questions SEC On Its Probe of Lehman

By Amit R. Paley
Washington Post Staff Writer
Friday, February 20, 2009

A senior Republican lawmaker pressed the Securities and Exchange Commission yesterday about whether it had properly investigated warnings about possible insider trading at the failed investment bank Lehman Brothers.

Sen. Charles E. Grassley (Iowa), the ranking Republican on the Senate Finance Committee, said in a letter to the SEC that it was unclear whether the agency was seriously examining the allegations raised by a whistleblower at the firm.

Since April, a senior Lehman analyst has provided more than 4,000 e-mails and other documents to agency staff, including at a six-hour meeting, according to Grassley.

Grassley said his concerns about the SEC's performance in the case reflected, in part, the agency's failure to detect a $50 billion fraud allegedly carried out by Wall Street financier Bernard L. Madoff. "In light of the SEC's failure to follow-up on repeated warnings about the Madoff ponzi scheme," Grassley wrote, "I must inquire as to whether these allegations are being acted upon."

The Lehman analyst provided evidence to the SEC about possible insider trading involving a Lehman unit called the Product Management Group, according to documents released by Grassley's office. Stock analysts at Lehman sent their reports to this unit several hours before the findings were released publicly, possibly giving traders a head start in transacting deals, according to the documents.

"There are many documents that raise suspicions of possible insider trading," Grassley added. "It is unclear whether or not the SEC staff adequately investigated."

John Nester, an SEC spokesman, had no immediate comment but said, "we certainly share the Senator's interest in vigorous enforcement against illegal insider trading." The media office of Barclays, which purchased some of Lehman's operations after the Wall Street bank collapsed last fall, did not respond to phone calls.

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