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(a) Buffett and Berkshire Hathaway
(i) March 2008
In late March 2008, McGee suggested that Lehman reach out to Buffett.2429
McGee had a pre‐existing banking relationship with Sokol of MidAmerican Energy,2430
which is majority‐owned by Buffett’s Berkshire Hathaway. Either McGee or Joseph G.
Sauvage, LBI Vice‐Chairman, called Sokol to ask if Buffett would take Fuld’s call.2431
Jerry A. Grundhofer, who was about to join Lehman’s Board, also asked Buffett if he
would take Fuld’s call.2432 Buffett agreed.2433
Before calling Buffett, Fuld called Sokol on March 27, 2008.2434 That same day,
Lehman prepared a draft of a letter, to be sent by Fuld to Lehman employees, outlining
a $3.5 billion investment from Buffett in Lehman’s preferred stock at a $54 per share
conversion price.2435 Fuld told the Examiner that he did not know how that letter came
to be prepared, and it does not appear that Fuld saw the draft.2436 Fuld also did not
recall Buffett indicating a willingness to invest $3.5 billion.2437 Buffett was surprised that
2429 Examiner’s Interview of Richard S. Fuld, Jr., Sept. 30, 2009, at p. 8.
2430 At the time, Sokol was President of MidAmerican. In August 2009, Sokol became CEO of NetJets,
Inc., another Berkshire Hathaway subsidiary.
2431 Examiner’s Interview of David L. Sokol, Sept. 22, 2009, at p. 3.
2432 Examiner’s Interview of Jerry A. Grundhofer, Sept. 16, 2009, at p. 10.
2433 Examiner’s Interview of Richard S. Fuld, Jr., Sept. 30, 2009, at p. 8; Examiner’s Interview of Jerry A.
Grundhofer, Sept. 16, 2009, at p. 10; Examiner’s Interview of Warren E. Buffett, Sept. 22, 2009, at p. 2.
2434 Richard S. Fuld, Jr., Lehman, Call Logs (Mar. 27, 2008) [LBHI_SEC07940_016916].
2435 E‐mail from Timothy Lyons, Lehman, to Scott J. Freidheim, Lehman (Mar. 27, 2008)
[LBHI_SEC07940_849386].
2436 Examiner’s Interview of Richard S. Fuld, Jr., Sept. 30, 2009, at pp. 9‐10.
2437 Id. at p. 10.
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Lehman had prepared a draft letter announcing the deal, because he never got close to a
deal with Lehman.2438
Fuld and Buffett spoke on Friday, March 28, 2008. They discussed Buffett
investing at least $2 billion in Lehman.2439 Two items immediately concerned Buffet
during his conversation with Fuld.2440 First, Buffett wanted Lehman executives to buy
under the same terms as Buffett.2441 Fuld explained to the Examiner that he was
reluctant to require a significant buy‐in from Lehman executives, because they already
received much of their compensation in stock.2442 However, Buffett took it as a negative
that Fuld suggested that Lehman executives were not willing to participate in a
significant way.2443 Second, Buffett did not like that Fuld complained about short
sellers.2444 Buffett thought that blaming short sellers was indicative of a failure to admit
one’s own problems.2445
2438 Examiner’s Interview of Warren E. Buffett, Sept. 22, 2009, at p. 4.
2439 Examiner’s Interview of Richard S. Fuld, Jr., Sept. 30, 2009, at p. 10; Examiner’s Interview of Warren E.
Buffett, Sept. 22, 2009, at p. 4.
2440 Examiner’s Interview of Warren E. Buffett, Sept. 22, 2009, at p. 4.
2441 Examiner’s Interview of Richard S. Fuld, Jr., Sept. 30, 2009, at pp. 9‐10; Examiner’s Interview of
Warren E. Buffett, Sept. 22, 2009, at p. 3.
2442 Examiner’s Interview of Richard S. Fuld, Jr., Sept. 30, 2009, at pp. 9‐10.
2443 Examiner’s Interview of Warren E. Buffett, Sept. 22, 2009, at p. 3.
2444 Id. at p. 4. Paulson told the Examiner that he did not think that Buffett would be interested in
Lehman. Paulson told the Examiner that he thought Fuld’s suggestion of Buffett as a potential investor
indicated that Fuld was “scared, but not scared enough” and did not appreciate the gravity of Lehman’s
situation in March 2008. Examiner’s Interview of Henry M. Paulson, Jr., June 25, 2009, at p. 12.
2445 Examiner’s Interview of Warren E. Buffett, Sept. 22, 2009, at p. 3.
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Following his conversation with Buffett, Fuld asked Paulson to call Buffett,
which Paulson reluctantly did.2446 Buffett told the Examiner that during that call,
Paulson signaled that he would like Buffett to invest in Lehman, but Paulson “did not
load the dice.”2447
Buffett spent the rest of Friday, March 28, 2008, reviewing Lehman’s 10‐K and
noting problems with some of Lehman’s assets.2448 Buffett’s concerns centered around
derivatives and their related credit‐market risk, Level III assets and Lehman’s
securitization activity.2449 On Saturday, March 29, 2008, Buffett learned of a $100 million
problem in Japan that Fuld had not mentioned during their discussions, and Buffett was
concerned that Fuld had not been forthcoming about the issue.2450 The problems Buffett
saw in the 10‐K along with Fuld’s failure to alert Buffett to the issue in Japan cemented
Buffett’s decision not to invest in Lehman.2451
At some point in their conversations, Fuld and Buffett also discovered that there
had been a miscommunication about the conversion price. Buffett was interested only
2446 Examiner’s Interview of Henry M. Paulson, Jr., June 25, 2009, at p. 12; Examiner’s Interview of Richard
S. Fuld, Jr., Sept. 30, 2009, at p. 8.
2447 Examiner’s Interview of Warren E. Buffett, Sept. 22, 2009, at p. 2.
2448 Id. at p. 3.
2449 Id. Buffett made notes on many of the 10‐K pages about Lehman’s financials. Those notes illustrate
that Buffett had questions or took issue with much of what Lehman was reporting, as he stated during his
interview. Additionally, Buffett seems to have had a heightened focus on Lehman’s real estate and high
yield assets and on accounting issues relating to the stock price, assets, or liabilities. Id.
2450 Id. at pp. 3‐4. Accord Examiner’s Interview of Richard S. Fuld, Jr., Sept. 30, 2009, at p. 10.
2451 Examiner’s Interview of Warren E. Buffet, Sept. 22, 2009, at p. 4.
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in convertible preferred shares.2452 Buffett told Fuld that he was willing to agree to a $40
conversion price per share, while Fuld thought Buffett was offering to buy in at “up‐
40,” or 40% above the current market price, which would have been about $56 per
share.2453 On Friday, March 28, 2008, Lehman’s stock closed at $37.87.2454
Fuld spoke to Lehman’s Executive Committee and several Board members about
his conversations with Buffett.2455 Lehman recognized that an investment by Buffett
would provide a “stamp of approval.” However, Lehman already had better offers for
its April capital raise, and Lehman did not think it could give a better deal to Buffett at
the same time it gave a less attractive deal to others.2456
On Monday, March 31, 2008, before Buffett could tell Fuld that he was not
interested, Fuld called Buffett to say that Lehman could not accept his terms.2457
(ii) Last‐Ditch Effort with Buffett
McGee contacted Sokol again in late August or early September 2008 and
2452 Id. at p. 2.
2453 Examiner’s Interview of Richard S. Fuld, Jr., Sept. 30, 2009, at p. 10.
2454 See Yahoo! Finance, Historical LEH stock prices, available at http://finance.yahoo.com/q?s=LEHMQ.PK.
2455 Richard S. Fuld, Jr., Lehman, Call Logs (Mar. 28 ‐ Apr. 3, 2008) [LBHI_SEC07940_016911]; Examiner’s
Interview of Richard S. Fuld, Jr., Sept. 30, 2009, at p. 11; Examiner’s Interview of Jerry A. Grundhofer,
Sept. 16, 2009, at p. 10; Examiner’s Interview of John D. Macomber, Sept. 25, 2009, at p. 20.
2456 Examiner’s Interview of Richard S. Fuld, Jr., Sept. 30, 2009, at p. 11.
2457 Examiner’s Interview of Warren E. Buffett, Sept. 22, 2009, at p. 4; Examiner’s Interview of Richard S.
Fuld, Jr., Sept. 30, 2009, at p. 11.
2458 Lehman, The Gameplan (Sept. 2008) [LBHI_SEC07940_653681], attached to e‐mail from Hugh E.
McGee, III, Lehman, to David L. Sokol, MidAmerican Energy Holdings Co., et al. (Sept. 4, 2008)
[LBHI_SEC07940_653680]; Examiner’s Interview of David L. Sokol, Sept. 22, 2009, at p. 4.
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subsequent telephone call with Sokol, McGee explained the “good bank/bad bank”
scenario and stated that Lehman would need an investor.2459 Sokol believed the e‐mail
and call were intended to induce Sokol to pass that information on to Buffett, so Sokol
briefed Buffett on SpinCo. Buffett thought the idea would not solve Lehman’s
problems.2460
Sometime during the week prior to Lehman’s bankruptcy, McGee again reached
out to Sokol with what both Sokol and McGee described to the Examiner as a “Hail
Mary” pass.2461 McGee asked, “Do you have any ideas to save us?”2462 Sokol, who was
bear hunting in Alaska at the time, told McGee that he did not.2463
(b) KDB
(i) Discussions Begin
In late May 2008, Hana Financial Group (“Hana”) led a consortium of Korean
financial institutions in talks concerning a possible investment in Lehman.2464 According
to KDB, KDB started discussions with Lehman and Hana concerning an investment in
Lehman through a consortium of Korean investors in early June 2008.2465 The
contemplated consortium included KDB, Korea Investment Corporation (“KIC”), Korea
2459 Examiner’s Interview of David L. Sokol, Sept. 22, 2009, at p. 4.
2460 Id.
2461 Id.; Examiner’s Interview of Hugh E. McGee, III, Aug. 12, 2009, at p. 16.
2462 Examiner’s Interview of David L. Sokol, Sept. 22, 2009, at p. 4.
2463 Id.
2464 Examiner’s Interview of Kunho Cho, Jan. 7, 2010, at p. 5.
2465 Examiner’s Interview of KDB, Oct. 26, 2009, at pp. 6‐7.
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