Lehman Brothers

Lehman Brothers is an investment banking and financial services firm. It is a market leader in equity and fixed income sales, trading and research, investment banking, private equity, and private banking. The firm is headquartered in New York, London, and Tokyo. The Chairman of the Board and CEO is Richard S. (Dick) Fuld, Jr., and the President and COO: Joseph M. (Joe) Gregory.

The publicly traded parent corporation (ticker symbol: LEH; CUSIP number: 524908100) is Lehman Brothers Holdings Inc. The other branches of the business are wholly owned subsidiaries.

History

The firm was founded in 1850 in Montgomery, Alabama. When Emmanuel and Mayer Lehman joined in and rechristened their brother Henry's general store, originally opened in 1844. They were immigrants from Germany.

The Lehman Brothers moved their business to New York City after the American Civil War. They helped found the Cotton Exchange, were involved in the emerging market for Railroad Bonds, and entered the financial advisory area.

Lehman Brothers joined the New York Stock Exchange in 1887. They began to develop international interests in Europe and Japan as well as expertise in merchant banking.

In the first decade after the turn-of-the-twentieth-century, Lehman Brothers helped secure financing for the founding of, among others, Sears, Roebuck & Company, F.W. Woolworth Company, May Department Stores Company, Gimbel Brothers, Inc. and R.H. Macy & Company.

The company weathered the capital crisis of the Great Depression by focusing on helping private funders and companies connect, while the equities market recovered. This was the foundation of today's venture capital industry.

In the 1930s, Lehman Brothers underwrote the initial public offering of the first television manufacturer, DuMont and helped fund RCA, the Radio Corporation of America. They also helped found the emerging oil industry, including companies Halliburton and Kerr-McGee.

In the 1950s, Lehman Brothers underwrote the IPO of Digital Equipment Corporation. Later, they would arrange the acquisition of Digital by Compaq.

2003 SEC Litigation

In 2003, the Securities and Exchange Commission settled charges against Lehman Brothers arising from an investigation of research analyst conflicts of interest. As part of the settlement, Lehman agreed to pay $25 million as disgorgement and an additional $25 million in penalties. One-half of the total of these payments, $25 million, was paid in connection with the SEC action and related proceedings by the National Association of Securities Dealers and New York Stock Exchange and placed into a distribution fund for the benefit of the firm's customers. The remainder was paid to resolve related proceedings by state regulators. Lehman Brothers agreed to a federal court order requiring the firm to make changes in the operations of its equity research and investment banking departments. In addition, Lehman agreed to pay, over five years, $25 million to provide the firm's clients with independent research, and $5 million for investor education.

Specifically, the Commission alleged that Lehman tied the financial compensation of analysts directly and indirectly to the analyst's success in generating investment banking revenue from public companies. Furthermore, Lehman used the promise of future research coverage to obtain valuable IPO underwriting business and marketed to companies the ability of Lehman analysts to move the market for a stock.

In one instance, an analyst who covered Razorfish Inc. told an institutional investor in an email, "well, ratings and price targets are fairly meaningless anyway . . . but, yes, the `little guy' who isn't smart about the nuances may get misled, such is the nature of my business."

Finally, Lehman failed to supervise its research analysts adequately and to establish policies to ensure their proper conduct.

Lehman agreed as part of the settlement to implement structural reforms and provide enhanced disclosure to investors. It agreed to sever links between research and investment banking, such that: research and investment banking are physically separated with completely separate reporting lines; analysts' compensation cannot be based directly or indirectly upon investment banking revenues; investment bankers may no longer evaluate analysts; investment bankers will have no role in determining what companies are covered by the analysts; and research analysts will be prohibited from participating in efforts to solicit investment banking business, including pitches and roadshows. Lehman agreed to disclose on the first page of each research report whether the firm does or seeks to do investment banking business with that issuer, and when Lehman decides to terminate coverage of an issuer, Lehman will issue a final research report discussing the reasons for the termination. Lehman also agreed to publish quarterly on its website a chart showing its analysts' performance, including each analyst's name, ratings, price targets, and earnings per share forecasts for each covered company, as well as an explanation of the firm's rating system.

Subsidiaries

Subsidiaries of Lehman Brothers include: Aurora Loan Services, Inc., SIB Mortgage Corporation, Lehman Brothers Bank, FSB, Lehman Brothers Inc., and Neuberger Berman Inc.

The firm is a member of the S&P 500 and at last count (2004) had 16,200 employees.

The firm's address is: Lehman Brothers; 745 Seventh Avenue; New York, NY 10019; USA.

Diversity

Lehman Brothers recieved a 100% rating on the Corporate Equality Index released by the Human Rights Campaign starting in 2003, the second year of the report.

External links

• Lehman Brothers (http://www.lehman.com) - official website