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ALL IN 

had proclaimed that “Risk Management is at the very core of Lehman’s business
model,” the Executive Committee simply left its risk officer, Madelyn Antoncic, out of
the loop when it made this investment. 
Since the late s, Lehman had also built a large mortgage origination arm, a
formidable securities issuance business, and a powerful underwriting division as
well. Then, in its March  “Global Strategy Offsite,” CEO Richard Fuld and other
executives explained to their colleagues a new move toward an aggressive growth
strategy, including greater risk and more leverage. They described the change as a
shift from a “moving” or securitization business to a “storage” business, in which
Lehman would make and hold longer-term investments. 
By summer , the housing market faced ballooning inventories, sharply re-
duced sales volumes, and wavering prices. Senior management regularly disregarded
the firm’s risk policies and limits—and warnings from risk managers—and pursued
its “countercyclical growth strategy.” It had worked well during prior market disloca-
tions, and Lehman’s management assumed that it would work again.  Lehman’s Au-
rora unit continued to originate Alt-A loans after the housing market had begun to
show signs of weakening.  Lehman also continued to securitize mortgage assets for
sale but was now holding more of them as investments. Across both the commercial
and residential real estate sectors, the mortgage-related assets on Lehman’s books in-
creased from  billion in  to  billion in . This increase would be part
of Lehman’s undoing a year later.
Lehman’s regulators did not restrain its rapid growth. The SEC, Lehman’s main
regulator, knew of the firm’s disregard of risk management. The SEC knew that
Lehman continued to increase its holding of mortgage securities, and that it had in-
creased and exceeded risk limits—facts noted almost monthly in official SEC reports
obtained by the FCIC.  Nonetheless, Erik Sirri, who led the SEC’s supervision pro-
gram, told the FCIC that it would not have mattered if the agency had fully recog-
nized the risks associated with commercial real estate. To avoid serious losses, Sirri
maintained, Lehman would have had to start selling real estate assets in .  In-
stead, it kept buying, well into the first quarter of .
In addition, according to the bankruptcy examiner, Lehman understated its lever-
age through “Repo ” transactions—an accounting maneuver to temporarily re-
move assets from the balance sheet before each reporting period. Martin Kelly,
Lehman’s global financial controller, stated that the transactions had “no sub-
stance”—their “only purpose or motive . . . was reduction in the balance sheet.” Other
Lehman executives described Repo  transactions as an “accounting gimmick” and
a “lazy way of managing the balance sheet as opposed to legitimately meeting balance
sheet targets at quarter-end.” Bart McDade, who became Lehman’s president and
chief operating officer in June , in an email called Repo  transactions “an-
other drug we R on.” 
Ernst & Young (E&Y), Lehman’s auditor, was aware of the Repo  practice but
did not question Lehman’s failure to publicly disclose it, despite being informed in
May  by Lehman Senior Vice President Matthew Lee that the practice was im-
proper. The Lehman bankruptcy examiner concluded that E&Y took “virtually no