US regulators probe Lehman executives over illicit securities sales

Former Lehman Brothers Holdings executives were questioned by the US regulators over their marketing of auction-rate securities, reported the Wall Street Journal, citing the sources familiar with the case.

The Journal reported that federal prosecutors from the Office of Attorney General in Brooklyn and lawyers of Securities and Exchange Commission were asking some ex-workers of Lehman Brothers about the securities, trying to determine if these people defrauded customers.

The securities were billed as safe cash-like instruments bought and sold in weekly or monthly auctions. In early 2008 the largest banks stopped supporting these auctions as investor demand for the debt dried up, part of a wider slump in financial markets. The prosecutors want to know if the Lehman employees were aware of the worsening conditions at the market and deliberately sold their own holdings of the securities.