Anton “Tony” Valukas on the Demise of Lehman Brothers

In episode one of Re-Examination, senior Jenner & Block partner Anton “Tony” Valukas explains how he approached telling one of the most consequential and complicated stories of our time: the collapse of Lehman Brothers. 

Once the world’s fourth largest investment bank, Lehman filed for bankruptcy on September 15, 2008. Its collapse contributed to the greatest economic crisis since the Great Depression of 1929. 

Appointed examiner by the judge overseeing Lehman’s bankruptcy, Tony was tasked with explaining how an investment bank that had reported record revenues of nearly $60 billion less than eight months before fell so swiftly. 

In the end, Tony and his Jenner & Block colleagues filed a nine-volume, 2,200-page account known as the Valukas report that became the definitive account of Lehman’s fall and set a new standard for investigating corporate failure.

In conversation with Infinite Global Head Writer Andrew Longstreth and M Coffey founder Murray Coffey, Valukas discusses his approach to producing the Valukas report, which was noted as much for its unimpeachable veracity as its illuminating use of storytelling.   

Thank you for listening. To learn more, visit Infinite Global and M Coffey.

Transcript

[00:00:00] Tony Valukas: It was a presentation to the world about what had happened. It had to be written differently. It had to be written in a way that there could be no question. There wasn't a piece of advocacy here. It was a piece of truth-telling.

[00:00:24] Andrew Longstreth: On Monday, September 15th, 2008, Lehman Brothers, the world's fourth-largest investment bank, filed for bankruptcy. The Chapter 11 petition, which listed more than $600 billion in assets, was and remains the largest bankruptcy filing ever in the United States. The storied investment bank's dramatic fall was the climax of a global financial crisis that wiped out $2 trillion from the global economy, leading to the greatest economic crisis since the Great Depression of 1929.

[00:00:59] What happened? How did an investment bank that had reported record revenues of nearly $60 billion less than eight months before fail so swiftly? Over the previous decade, a subprime lending craze had fueled an unprecedented surge in the number of homeowners and real estate speculators. But as the default rates on those subprime loans started to skyrocket, it was clear the music had stopped.

[00:01:21] Financial giants like Lehman, which had fueled the mania with excessive risk-taking, scrambled for their chairs.

[00:01:34] In the spring of 2008, the federal government provided Wall Street stalwart Bear Stearns with an emergency loan just to keep its doors open, resulting in its eventual sale to J. P. Morgan. Lehman was not so fortunate. After what became known as the Lehman Weekend in September 2008, regulators determined that it would not be receiving a bailout.

[00:02:00] Everyone implicated in Lehman's failure had a story they wanted to tell. But where was the truth? That job fell to Anton Valukas, appointed examiner by the judge overseeing Lehman's bankruptcy. A former U.S. attorney for the Northern District of Illinois and then chairman of the litigation powerhouse Jenner & Block, Valukas had the sterling reputation these kinds of assignments call for.

[00:02:22] But this was no ordinary assignment. He was not charged with persuading a judge or a jury. His goal was not to keep some evidence out and some in like all good litigators try to do. His job was to inform the public, whose confidence in financial markets had been shaken. The scrutiny was intense.

[00:02:39] Reputations and livelihoods were on the line.

[00:02:49] In the end, he and his colleagues filed a nine-volume, 2200-page report. Known as the Valukas Report, it became the definitive account of Lehman's fall and set a new standard for investigating corporate failure. The report is perhaps best known for uncovering the infamous accounting device known as Repo 105 that allowed Lehman to mask its true financial health.

[00:03:11] But the report also stands out for its lucid prose and for its unsparing examination of Lehman's executives, regulators, and accountants. And, of course, its bulletproof foundation. Not one fact in the report has been contested since it was published. Judge James Peck, who oversaw the Lehman bankruptcy, called the report, quote, one of the most extraordinary pieces of work product I've ever encountered.

[00:03:34] Murray Coffey: Welcome to Re-Examination: Conversations with the Storytellers Behind Legal Advocacy. This podcast is a joint production between M Coffey and Infinite Global. My name is Murray Coffey. I'm the principal at M Coffey, a business development and marketing consultancy, and I'm joined on this podcast series by a longtime friend, colleague, and somebody who I've admired for years, Andrew Longstreth. 

[00:04:14] Andrew Longstreth: Thank you, Murray.

[00:04:15] It's a pleasure to be with you again. We've run across each other throughout our careers. Really excited to be doing this project with you. I think we know that great lawyers are more than just legal tacticians, right? We think that the great ones really are master storytellers and in this podcast, I think we're going to try to highlight their craft.

[00:04:38] Right. And through sort of this retrospective of some pivotal cases and other forms of advocacy, try to dig deep into some of the choices these, these lawyers have made that have really led to a major impact, major lasting results. And so I'm excited to be on this journey with you.

[00:05:01] Murray Coffey: As am I. And I hope that as people listen to this, this podcast, they'll be reminded of just how important storytelling is, not just for law and advocacy, but for understanding. Um, and for getting to the truth and how to talk about the truth, um, which has been a challenge recently, Andrew. 

[00:05:25] Andrew Longstreth: And I don't think there's any person better to start with than Tony Valukas.

[00:05:32] As we mentioned in, in, in the intro, he was the author of the Lehman Report, which was a tour de force really in storytelling and in fact-finding and we really wanted to understand how he went about that. How did he get the truth? How did he approach storytelling, and what is the legacy of that storytelling today?

[00:05:58] And so we are now going to listen to that interview, and we hope you enjoy it.

[00:06:06] Murray Coffey: Well, we are honored to have Tony Valukas with us today. As you heard, in the intro, Tony is one of the true stars in the firmament of law. And in a term that Tony taught me many years ago, which was ‘cards up.’ That was always how we started out the meetings with Ton--y cards up cards up, I just want to be off with full transparency,

[00:06:37] I was lucky enough, and, and, and honored to have worked at Jenner & Block for the years that I did, and even more so to have worked alongside Tony as we were promoting and managing really the inflow of the interest in the Valukas Report. So that's my little transparency here up on the front end.

[00:07:04] So Tony, it's great to see you. It's been a while. Why do you think a nine-volume massive report on one of the most complex business organizations the planet has possibly ever known caught fire like it did? We had 5,000 copies of the full report being downloaded every day for weeks off of the Jenner& Block website.

[00:07:33] Um, we got calls from all over the world, as you will recall, and we had to pick and choose where and to whom you would speak, uh, about, about the report, um, because there just simply weren't enough hours in a day for you to respond to the inquiries that were coming in from all, from everywhere. So Tony, what do you think it was about the report that had it catch fire the way it did?

[00:08:02] Tony Valukas: There were two aspects that I would look at and say really cause this report to be so meaningful in the public eye. One is the obvious and the simple one, which is where you had an institution, which eight months before the bankruptcy, was considered one of the three or four premier banks and financial institutions in the world, over a hundred years old, considered to be in many respects, the best of the best in various areas that the, you know, the Department of Treasury among others relied on them.

[00:08:42] They had a world-class law firm represent them, world-class accountants who took care of them. If there was a safe investment to be made, it was Lehman Brothers in January of 2008. On their premises were the SEC and the Federal Reserve, reviewing their books and records. How could this be anything other than a great place to be. And eight months later, they’re in bankruptcy. How could that have happened. That was the first part. The second part of it was: What were the consequences? And the consequences were Lehman didn't bring down the world’s economies. They were brought down by a whole complex set of factors, many of which led to Lehman's failure. But Lehman brought it down. Lehman was the precipitating factor which brought everything to a, to a head and then to an abyss.

[00:09:38] And trillions of dollars were lost across the world, tens of millions and maybe hundreds of millions of people lost their jobs, whole economies failed, banks failed, and the question was, how could this have happened? So it was enormously complex, and the question was, how to tell this, first of all, first of all, to understand what happened, and secondly, to tell a complex story in a way that people could read this and say, I understand.

[00:10:10] I understand. And if you read the first nine pages of a 2200-page report with literally thousands and thousands of footnotes, you'll understand. So what we strove to do was to take the most complex, reduce it to a, uh, a position, a narrative which could be understood. And to be confident that that narrative told the truth.

[00:10:38] That's what we're seeking. As you said before, all the cards face up on the table, and then good and honest people will draw the right conclusions. And that's what we sought to do. It was an enormous effort, and it took a lot of thinking and planning to reach that result. But I can tell you now we are what, how long, let's see, 2011 to today.

[00:10:59] 13 years, 12 years. We have not found anyone has come up with a single incident where there's a factual error or conclusion in that report over all those years. And that report was scrutinized by academicians, lawyers representing corporations that had billions at stake, individuals who had a point of view, professional societies, and while they may not like what the report has to say, no one has found a basis for saying it wasn't accurate.

[00:11:28] And that's what we sought to do. Tell the truth. 

[00:11:32] Andrew Longstreth: Tony, you definitely, you set the standards for these types of examiner's reports. I want to talk a little bit about your approach to the report. You're a former U. S. attorney. Can you talk a little bit about how that experience influenced how you approach to get the story and then to tell it.

[00:11:50] Tony Valukas: There are two things that you need to look at in terms of understanding the approach that was being taken. First, having been at least part of my life both as a prosecutor, as a United States attorney, and as a defense attorney, I understood what drove attorneys and in connection with representing clients and interest.

[00:12:12] So I needed to be in a position where these clients, the various clients, the presidents of their major financial institutions, the secretary of the Treasury, the chairman of the Federal Reserve felt free to talk to me. That was going to be difficult because the Southern District, three districts on the East Coast had all announced grand jury investigations.

[00:12:35] So your first instinct as a lawyer is to say, keep your head down, your mouth shut, and we'll let this pass. But I needed to convince them to talk. And I was advantaged by one thing in particular, which I did not understand from the beginning, but which I learned as I went along, is that everybody wanted to talk because no one, and here's what the way it was phrased to me by the chairman of a major New York bank: it wasn't us. We didn't cause it to happen. And that was a position that everybody wanted to say, we didn't do it. And that included the chairman of Lehman Brothers. He saw it as outside forces, but everybody wanted to point out and give me the information that it wasn't us. So that's the first thing.

[00:13:18] We had witnesses who wanted to talk. One witness chased me into a bathroom to get past his lawyer, who was a woman, so that he could talk to me. And I wouldn't talk to him, but he was making his best shot at it, that's for sure. So that was one aspect of it. So how to get around the grand jury issue and the, you know, the threat of prosecution?

[00:13:40] The second part of that was that, as a trial lawyer, you spend a great deal of your time trying to exclude evidence. That's what trial lawyers do. I mean, a good trial lawyer spends their time filing motions to suppress, motions to limit, all those sort of things, so that when you're presenting something to a jury, you want it to be a story that you have shaped for that jury.

[00:14:02] This was going to be something totally different, and while my team had brilliant trial lawyers, a whole group of whom were members of the American College of Trial Lawyers, ee understood that we had to look at this entirely differently. We weren't going to tell a story, but we were not going to try and shape the story.

[00:14:18] We were going to let the facts shape the story. So we would set up a system where we, here's the proposition. The proposition is that XYZ took place because of A. We'd gather all the facts concerning that. Then we'd say the opposite proposition. So we would have all the facts all the arguments on both sides available.

[00:14:37] And then we would lay all of those facts out so that you could draw conclusions. One of the most significant things we did, and we prepped for this meeting. We had a meeting in New York early on in the investigation. In that meeting, while it was held at Weil Gotshal, a noted New York firm, in the, and they were located in the headquarters of General Motors right off Fifth Avenue, and I remember going to the meeting and being stunned by the fact that I was now in the presence of most senior partners from major law firms across the world were in that meeting.

[00:15:10] I have no idea the billable hours that were cranked out of that meeting, but it was probably the economy of a small nation. And what I needed to do was convince the people in that room that their witnesses should talk to me. And so, what I had decided I would do is I would not take their statements under oath.

[00:15:30] I would not put a court reporter in the room. Because of the grand jury, that court reporter's statement would become evidence. We would take notes, and we took them very carefully. We'd have two people in the room taking notes simultaneously. And therefore, I could claim work product as it related to the conversations with their witnesses.

[00:15:49] So I was giving them the opportunity of doing what they want to do, which is tell their story and limiting their risk. So my experience as a U.S. attorney, as a defense attorney all helped shape that approach because I knew what they were thinking and what they had to face, and this was a way to get the information.

[00:16:08] Every single witness talked to us voluntarily. We did not have to issue a single subpoena even though I had subpoena authority. So it worked. And I said one last thing to him. I'm not looking to put a pelt on the wall. I'm only interested in having the truth come out. So I'm not interested in having, you know, someone be, uh, you know, the perpetrator.

[00:16:32] That's not where I'm going here. And I told my our lawyers, we all agreed we would continue that theme throughout. So, in that way, we were able to gather the information. In fact. frankly, unimpeded and get the United States Attorney's Office, which could have put an end to our investigation at any point by simply going before the court and saying, we want to conduct a grand jury investigation, Mr. Valukas’s inquiry will interfere with that. The court would have put a halt on ours. The U.S. Attorney's Office realized that we were going to be able to do something that they hadn't been able; they had nothing in their hand right now. We were going to hand them their case. We're going to do the investigation.

[00:17:12] They had confidence in us because I was the former U.S. Attorney. We had others here. They had confidence in us. We were going to hand them the evidence every day as we went along, which is what we did. And the backside of that was they never asked us to stop the investigation. So we were able to do all of those things.

[00:17:29] But we thought this through very carefully. In the end, the story that was going to be told was not a presentation to a jury. It was a presentation to the world about what had happened and had to be written differently and had to be written in a way that there could be no question that this wasn't a piece of advocacy here.

[00:17:50] It was a piece of truth. 

[00:17:54] Murray Coffey: Let's dig into that a little bit, Tony, the, um, about the, the, the way that you worked this in, you turn this into the truth-telling. You are. You presented, you spoke at, I don't know, Tony, a dozen, 20, 30 different kinds of events over the course of what I used to call my Lehman year, and, um, and you never gave the same presentation twice, and there were facts, and there were some bits and pieces that were the same, but you If you were talking to CPAs, you might lean into this.

[00:18:32] If you were talking with, well, I don't know if you remember the institutional investors that we were sitting in front of it. Many of them were, were Lehman refugees, uh, who, who, I don't know if you recall, but they came up and thanked you afterward for telling the truth. How, how do you, how do you take, how do you think about the different audiences and take your, the, the story and your storytelling abilities and, and work that into something that your audiences are going to understand because it was everywhere. Everyone from Mr. and Mrs America to the most sophisticated accountants on the planet that you were presenting to. 

[00:19:12] Tony Valukas: That's uh, that's an excellent question because it's something that when we're doing that when we got done with the report, we refused to give any.

[00:19:23] I refused interviews from anybody until after, you know, I felt that the court felt that it was appropriate because I was an officer of the court and I was, my report was to the court and all obviously it was going to the public. Uh, it was the court to which I owed my allegiance here. Let's take the audience of the accountants.

[00:19:43] What I knew and understood from the beginning was I would need to tell them a story that would keep them interested. You didn't want people going to sleep on you. I mean, I learned that trying cases, they nod off, you're in trouble. So I would start by what, what had happened and, you know the, the background and nature of, of the, of all that took place.

[00:20:01] And there were plenty of stories and drama, believe me, I mean, there were hundreds of things you could have plucked out and said, this is an interesting story and to gather it up and get them focused on it and to understand from the very beginning the magnitude of what had taken place and why there were consequences.

[00:20:19] This was not something casual. This is we are; we were in the process of observing people's lives being destroyed, their pensions gone. You know, what they had hoped for in the years that they had worked had gone out the window because of something that happened in New York they had no idea what the hell was going on.

[00:20:37] So I needed to tell that in the beginning. And then secondly, I focused on the responsibility of their group. Was it the accountants? What did they do? What could they have done differently? What should they have done? Not as a lecturer. I'm not lecturing anybody about their obligations. But I'm alerting them to what took place and what the role was of the accounts.

[00:20:59] I remember meeting in a, I was invited to go to a, uh, uh, very, very, uh, I don't want to call it chi, chi deal by an accounting firm out in Arizona in which there were board members from. Major corporations. I mean, major. I mean, Silicon Valley, the, you know, the biggest in the Silicon Valley from here, maybe 25 people in the room and and I focused on what directors didn't do should have done, what was wrong with the board.

[00:21:30] If you looked at the board of directors of Lehman Brothers, you would have said, Oh, rock stars, you know, the former head of IBM, et cetera, et cetera. The problem is none of them understood the business. That's the problem, you know, you, so you may be great in one business, but you're not great in this business, and if you can't be great in this business, how are you going to oversee it?

[00:21:48] So I talked to him about that. So I tried to shape the message to the audience as to where they fit into in the responsibility for what took place at Lehman Brothers because it was, we said at the, you know, we quoted Ben Bernanke at the end, he said, There were a lot of people and a lot of institutions that were responsible for this disaster.

[00:22:09] And, you know, part of what I saw is identifying those institutions, uh, and individuals, not by name necessarily, so that people could learn the lessons that came from Lehman Brothers. There were lessons to be learned. 

[00:22:25] Andrew Longstreth: And going back to the approach, Tony, you invited people to come in to make presentations to you to make sure that you had the right story.

[00:22:32] Was there any tension between letting the story get ahead of you and making sure that the facts are backed up by the story? 

[00:22:40] Tony Valukas: We would, we, we put in place a process, what we call flash interviews. We had, we interviewed over 300 people. We knew that this report wasn't supposed to be warranties and written over 20 years just to be of use to the court. Real use to the court because there were billions of dollars in claims here that were going to be answered by some of the technical questions that have been posed to us that we had to get to the court in a timely fashion. So, we would every night have flash summaries. So let's say you went out and did an interview, and then Murray did an interview, and I did an interview.

[00:23:17] We would expect flash summaries of those interviews to be available within, you know, hours. And we would review them, circulate them every day so that whatever you got in your interview, I was able to read that night. So I knew for the next day's interview, what was the up-to-date information. We subdivided the team.

[00:23:37] So they focused on issues so that there was a, uh, expertise developed in there. So we could gather that information and focus it. And so it wasn't everybody wasn't reading everything all of the time. The complication came, for instance, let's take repo 105. Everybody knows about repo 105. A young, I can't remember whether it was a young partner or a senior associate or another associate, went out and interviewed somebody about repo 105.

[00:24:04] They interviewed a whistleblower who the government had told us they didn't think had much to say and didn't have real credibility. We thought otherwise. And we followed that up. Then they went and interviewed an individual who they came back. I don't, will not identify that person. And this individual had two degrees.

[00:24:21] One degree is, my recollection was Harvard, and the other was from Cambridge. And that person was very, uh, how should I describe it? Very aware that they had two degrees. Okay. They had this very elevated position and spent a lot of time lecturing my associate and young partner about how they really just didn't understand finances and how the real world worked.

[00:24:44] Well, we, they came back and thought maybe they didn't. And they continue to dig. And the answer is, yes, we did, ultimatey. We did understand. So, we never took somebody at their word. We never discounted them. We never suggested that they didn't know what they were talking about. But every step along the way, we went back to check, check, check.

[00:25:03] There's a more recent, uh, brilliant documentary I saw the other night about the author of the Lyndon Johnson books. And the book and the one great quote from there is to turn every page. That's what you tell an investigative reporter. And that's what I told my team. Turn every page, every page, read it and reread it and make sure we understand it.

[00:25:24] And then we'll move on. That's what we did. So we never left it to our guests. We always pursued it. So, there was nothing less for us to pursue. And then we'd say, this is what we have. 

[00:25:37] Andrew Longstreth: Did you have a previous model to work off of? Uh, everybody talks about the Lehman report setting the standard for these types of examiner's reports. I'm curious: did you see some piece of public report or work that you wanted to adhere to or the standards that you wanted to see met? 

[00:25:55] Tony Valukas: Well, there were two things I would say that. One of the things I picked up the phone after I was invited to be the examiner. Because I really didn't know what the hell an examiner did.

[00:26:05] I honestly did not. I had good lawyers with me who told me what it was that they were doing. And at that point, I realized I was the client, and they were, they were going to be my lawyers, which I enjoyed that. I called the 2 or 3 prior examiners, people who had done things like WorldCom and what have you.

[00:26:23] And asked him, what, what did they do? What did they learn? What what lessons to be learned and where were they, where did they, what were the pitfalls I should avoid? So they were very helpful in that. The other thing I did I'd had prior experience in doing internal investigations for corporations, but those are scrutinized by four or five people or the board of directors, not by.

[00:26:42] The universe, you know, the second one was, uh, I, you know, had been appointed by the governor to, I had a commission to oversee, you know, review prison reform in Illinois, which, you know, review what's wrong and come up with solutions, uh, which was all very helpful in terms of coming back to this. All cards face up on the table because there were various constituencies who had different views and on how prisons ought to be run.

[00:27:08] But ultimately, what I think was our skill set as trial lawyers and understanding how to gather facts, what the pressures would be to withhold information, not in a criminal sense, but withhold and saying, I don't want to talk to you now, wait until the trial and how to get around those issues and then being.

[00:27:29] Open to the fact that we didn't know what we were doing. We didn't understand what was going on that we had to be, you know, open to that fact and not presumed to know things we didn't know. So it was a very much from the, at the beginning we were, we were, you know, play the innocents. And gathered these information, but we became very sophisticated very fast.

[00:27:52] That's how we always do it. And you know, when you, the end result is, if you look at the report, what we were able to do is what every trial lawyer wishes they can do. We took that 2, 200 pages and all the footnotes, and if you read the first eight pages, You'll understand it all. So there is a statement that lawyers make about if you go up second, you're second, you know, so when the prosecutor makes a statement, gives his opening statement and defense attorney gets up and they say, somewhere within the first two minutes, you have to have the turnaround.

[00:28:29] How do you turn it around? It's very eloquent. Lawyer got up there, painted your client is depth beyond description. You've got two minutes to do a turnaround, to get the jury to start listening to you. So you got to figure out how to do that. So what we had to do, we worked on that introduction for a long time and tried to figure out how to tell the story in less than 10 pages.

[00:28:54] And that we did. 

[00:28:56] Murray Coffey: And Tony, I think that feeds into my next point. I wanted to make sure that we raised with you and this, this is, we're talking about storytelling and techniques and you're clearly, you know, there's a masterclass for all of us, something that, that I have seen is your ability to get to what I would call the, uh, essential detail.

[00:29:21] And, and it's a detail oftentimes that some people will miss or they won't think of as being. Really important. And I think that that clearly Repo 105 popped up as more than a detail. Okay, let me pause right here and define Repo 105, a term you have heard us refer to many times in this podcast.

[00:29:41] Repo 105 is an accounting tool used by companies to temporarily move assets off their books. The Valukas report found that Lehman Brothers, with the blessing of its accounting firm Ernst Young, used this tool in the months leading up to the bankruptcy filing to hide tens of billions of dollars in troubled assets to make the firm look solvent.

[00:30:01] When in fact it was in a calamitous financial situation. Okay. Now back to our program, but can you talk to us about, and essential details are my words, not yours. Talk to us about that, how you approach that and where your training brings you to get to that. And I liked the way you talked about, and you're right, that you've got it for your defense attorney.

[00:30:24] You've got to turn it around in two minutes. And in that two minutes, you better have those essential details at your fingertips. So. How did, how do you, Tony Valukas, how do you find that essential detail?

[00:30:37] Tony Valukas: I'm gonna give you, I'm gonna, I'm gonna give this just to you in, in two ways. First of all, you have to know the facts and the case better than anybody else.

[00:30:51] You have to know it, which means I frequently would tell a witness, I know your story better than you know your story. I mean, I know. You know, when you can't remember that you were there on Tuesday, I do, okay, because that's what, that's the type of preparation that goes into it. I'll tell you a story, because it's not, it starts with all of the minutiae, but what it really leads to is the large picture, the strategic picture.

[00:31:17] It's like a baseball player, a great baseball player saying, and please don't, I'm not equating myself to a great anything, that's not what I'm saying, I'm just trying to make a point here. Saying that as the game goes on, as they become that much more skilled, let's say quarterback. The game slows down for them.

[00:31:32] You think they're older and they're slower, but they're actually, they, instead of looking across and seeing 50 things happening, they see the two things that really matter happening and they focus on those two things. And so that's strategic thinking, and that comes from an experience. I, I had the experience of, again, a war story of being invited to go to a top gun school and then fly as a sack of potatoes in the backseat of an F-16.

[00:31:58] So, you know, I played Tom Cruise for a day. And I talked to the base commander because I've been invited to give a speech out there. I said, how long can these pilots fly these extraordinary machines? And he said, well, they come in and they're really amazingly talented to begin with. They have incredible reflexes and 10,000 things are thrown at them as they're flying, you know, a thousand miles an hour.

[00:32:21] And they process them. I said, well, what happens? He said, well, they slow down because all human beings slow down. I said, maybe at the age of 34, 35, there are 10,000 things fly at them. He said, but they know the three things they need to focus on. So all the other stuff is chap. And that's what happens when you're saying, how do you get down to you?

[00:32:41] Because you know, everything. And if you send step back and say, well, what really matters here? Did it matter? He was in the door on Tuesday. Did it matter? This matter then what really mattered? And something like repo 105 mattered, not because it was the crime of the century, but because it bespoke an attitude and an approach to the practices that they were engaged in at that time of, you know, cutting the corners, pushing the envelope, taking all those risks on tomorrow's going to be a better day, etc.

[00:33:14] With an inevitable consequence that no one ever thought was going to be inevitable, but turned out to be inevitable and a disaster. So, if you understood his place i the overall picture, you understood why it was an important fact. 

[00:33:27] Andrew Longstreth: Tony, we wanted to talk a little bit about the legacy of the Valukas Report.

[00:33:32] I wanted to start with a question about the legacy of the report from a storytelling standpoint. There's a writer, Janet Malcolm, who once said that the story that can best withstand the attrition of the rules of evidence is a story that wins. The Valukas Report clearly withstood the scrutiny from armies of lawyers, but we live. 

[00:33:52] today in an age of disinformation and misinformation, I'm just curious if you have thought about whether or not stories like the Valukas Report were so bulletproof can still win today in our age of cacophony and noise. 

[00:34:16] Tony Valukas: Well, that's a very difficult question to answer because everything appears to be point and counterpoint today.

[00:34:23] There's no. Real. I mean, I'm not saying there shouldn't be. There's no, I mean, it is a rare situation where people are looking at this and saying, I really want to know what the truth is here. And then I'm in an address something accordingly. I mean, I, I would, you know, I'm naive about this, but I truly believe that you name, you name the issue.

[00:34:47] If you put people of good faith in a room and said here, here, we are all going to gather and agree on the facts. That you honestly will find solutions to problems that seem to be insoluble at this point. So I don't know. I don't know the answer to that question. I think maybe in the rarefied world of a, you know, private company doing what happened here, where you, you know, but it's hard to find something that doesn't have political overtones anymore.

[00:35:13] And the minute it becomes political overtones, it becomes, well, what about this? Or what about that? Or what about this? What about that? But I think from the standpoint of what it is that we need to have from people who are involved in the government, the U.S. Attorney's Office, others. And in the private sector, people have to be focused on telling the truth, you know, and sometimes, you know, maybe it's my naivete, but the belief that you know, the people of, uh, goodwill when they hear that, you know, see why and how it's, you know, something is the truth, they're going to react accordingly, maybe not in this heated, you know, and all the time, not in this heated atmosphere, but Maybe, maybe.

[00:35:49] Murray Coffey: Well, I can tell you, Tony, I, you know, when, when, when Andrew and I were preparing, I was thinking, gosh, what kind of social media strategy would I have put together for the, for the Valukas report? You know, if, if that was, I mean, I, I, you know, I can't even your, your, you have an extremely talented, uh, team of communications professionals at the firm, but I, you know, I would riddle them too.

[00:36:15] How would you do it? What would you do? How do you, how do you take. The Valukas report and turns into a tweet that matters. Um, 

[00:36:23] Tony Valukas: You, you, you'll recall you had the major difficulty because we had legitimate inquiries from legitimate people who wanted an answer. And you'd come up, and we would talk about it.

[00:36:33] And my response would see if we're not, we have no comment.

[00:36:39] Murray Coffey: Yeah, I remember a few of them

[00:36:47] Legacy here. Is there a gap between what you thought the desired effect of the Valukas report would be and what happened? And you know, you went on to 60 Minutes, you've, you've testified multiple times in front of Congress, um, and we're pretty plain about your thoughts on what we'll just call colorable issues?

[00:37:10] Can you talk a little bit about that? 

[00:37:12] Tony Valukas: Well, let me, let me fast forward to the, you know, failure of the S uh, Silicon Valley bank. I saw a comment from, uh, Chairman Powell the other day, which, in essence, was to say we should take the approach that, I think we should be taking the approach, I don't want to put words in his mouth, that we took after the disaster of 2008, which means that we can't be caught unaware.

[00:37:43] See, one of the things, one of the huge problems coming out of Lehman Brothers was the fact that no one saw it coming. So there was no way to prepare, no way to soften the disaster that was about to occur. And maybe, maybe, maybe it could have been better, but I don't know. But I do know that, you know, three days after Lehman Brothers, they put a hundred plus billion dollars into, uh, AIG and everybody done that, that, you know, we would have had a depression out of recession.

[00:38:10] So, you know, if they, if governments can see it coming, they can take steps and financial institutions, if they know what's coming, can take steps, things such as that. So that part of the legacy, the living wills that major financial institutions have to have, and the reporting that is now required on the risks and everything else, I think are significant, important.

[00:38:33] They give a certain amount of latitude to the financial institutions but don't do what they did before, which was to give them all the latitude they needed. They need to apply that lesson with regard to these regional banks and these other institutions. And that Powell's at least talked about. So that model.

[00:38:50] I think is working. I don't think it's perfect, but nothing's perfect. The model of prosecuting after the fact is ridiculous. I mean, having been a prosecutor, I can tell you all you do is pick up crumbs. You know, you get some money back, and maybe someone goes to jail. That doesn't replace all the people who are out of their life savings.

[00:39:09] They're dead. So you need to regulate it in the first instance. So I think we're much more attuned to the idea of regulation now, and regulation in a way that's meaningful and thoughtful. I think that's a good legacy. I think it's working, and, you know, I think we just have to expand that legacy significantly so that we don't leave people with the option of, well, let's see, I can make a million dollars by taking this risk.

[00:39:34] What the hell? I'll take the risk. And the answer is somebody should be looking and say, no, you can't take that risk. You're not allowed to take that risk. And that's, that's what the living wills do in part. And some of that legislation does, in part, and that we need to apply to much broader than we are right now.

[00:39:50] Andrew Longstreth: You know, Harvard has asked you to teach a class on, on the Lehman bankruptcy as, as we get further and further out from, from the bankruptcy. What do you hope young people who, who didn't live through that time, uh, necessarily, at least during their working lives, remember or should know about that time and what caused Lehman's bankruptcy?

[00:40:13] Tony Valukas: Well, I've been invited to participate in a class. At the business school, Harvard Business School, for, I think it goes on 11 years now, 10 or 11 years, and what's been interesting in the beginning, there were a large number of students who had been in the financial world when Lehman got Lehman failed. So they knew it up front and personal.

[00:40:35] They understood it because most of these students have been out of school for a while and then come back to the business. Now, we've gotten further and further away from it. So now you really do have to give them a lecture saying, And by the way, here's Lehman Brothers, and this is why it's important because they didn’t see it.

[00:40:50] But what has changed, what I have observed, I don't say across the board, I'm not going to counter, right, but I'm hearing more and more, more and more comments by people who are much more attuned to the idea of government regulation. Fewer and fewer comments of the freebooters of, you know. This is the way a capitalist society should operate.

[00:41:09] Take your risk, you know, get on it. And if it fails, we'll move on to the next one. Much more, at least within the confines of the school of people looking at it, you know, with regard to obligations that governments have obligations that executives have, much less the freebooting of them. At least in the questions and commentary that I've seen in the course. Whether that represents anything other than, you know, my mistaken view of what I'm hearing for 90 minutes.

[00:41:37] I don't know. But that that's that would be my report on it. 

[00:41:41] Murray Coffey: Well, Tony, as we wrap this up, is there anything that we haven't asked you that we should have asked you, which I think is a question I learned from you, and is there, is there any topic that you wanna make sure that, that we talk, we touch on, we cover in this historical look back if you will, and look forward.

[00:41:59] Tony Valukas: I tell you what I, this is a little bit off-topic, but it is, it is, I suppose I would address this to executives and people in that. In positions of responsibility, it is extremely difficult in the midst of a crisis to try to sort things out and be honest about what needs to be done because when you're in the middle of the crisis, you may be part of that crisis and I have seen situations over the last few years, last, I don't know, say ten years where corporations invite lawyers to come in and write a report and you can tell from at least a couple of those, those, some of those reports are simply we You know, they very confined.

[00:42:45] It's kind of like, well, it's only these two people. And then you find out two years later that it's much broader than that. And then you find a run another report, et cetera, that, you know, one of the things that were the lessons learned from way back when, and this was, I think, brilliance, both by the executives and by the people advising them as the PR was the Tylenal all case, which goes back and simply says, you know, tell the truth from the beginning.

[00:43:09] Make it, you know, put it out there, and you'll have credibility by doing so. And you'll salvage your company or salvage your brand. And I, you know, I, I really think that's the lesson that people need to learn. And I think if, if the report stands for something in, in the fact that it's subject, it has survived all the scrutiny, it told the truth.

[00:43:29] So telling the truth can be painful. It can be difficult, but it does have positive consequences. 

[00:43:37] Murray Coffey: Tony, this has been, uh, fantastic. And, um, I want to thank you personally as a, as a former colleague, and also as a, you know, somebody who's, who's doing what I'm doing today and the lessons learned. So thank you.

[00:43:50] Thank you for your time. Thank you for your wisdom. 

[00:43:52] Tony Valukas: It's been a delight. It was actually kind of a pleasure going back and taking a look at the report. I haven't looked at it for years. 

[00:43:58] Murray Coffey: For those who are interested, the Valukas report is still on jenner. com. So if you are interested in, if you are interested in. 2,000 pages, do yourself a favor and take a look at it; I might tell you to just download the first volume and read that one, 

[00:44:17] but 

[00:44:17] Tony Valukas: I would, I would say, yeah, I would say I would download the first 40 pages. All right. Thank you very much. Thank you. 

[00:44:27] Murray Coffey: Wow. Uh, that was, uh, quite a conversation, Andrew. I am, um, so thankful to Tony Valukas, to our friends at Jenner & Block, um, and to, uh, Judge Peck for, for, you know, helping, uh, helping, you know, give the world this, uh, this amazing, um, this amazing, uh, work.

[00:44:49] I, I was particularly struck by the way that Tony and his team and, and, you know, as we know, I have an insider's view to some degree on this. Uh, Tony and his team of, you know, over a hundred lawyers, uh, at its peak, um, were able to steer their way to the truth by first gathering information. And as Tony says upfront, and we talk about upfront, he's a cards-up kind of guy.

[00:45:22] And when you're in a meeting with Tony, when you are, when you're talking to Tony, You have faith that what you're hearing is, excuse me, what you're hearing is real and truthful and honest. And then, the gathering of the data, the gathering of the information, and then the, and then the, the, the discussion on.

[00:45:44] What the truth is, where the truth came out, which was really what they wanted to find out with this, why did this happen? What's the truth behind this? And, you know, we heard about how he then turned that into a story. And I think, you know, Andrew, as you, as a professional storyteller, probably have some thoughts on how, I know you have some thoughts on, um, sort of how they approach this and, and, and how we got to the, the truth in this 2000 page report. 

[00:46:15] Andrew Longstreth: Right. You know, I remember covering this back in the day a little bit as a reporter, but I, I forgot a lot of the details, frankly, and I forgot the trust that Tony was able to build with the folks that he was interviewing and some of that came naturally. Obviously, there was, there was a great desire.

[00:46:37] And I, I really think this is true with a lot of people. They, people, want to talk. Um, but. But also, Tony had a way of making them feel comfortable, and he could be trusted, and then he had integrity. And that's just so crucial in today's world. If you want to tell a story, you have to be upfront with people, as you said, and get people to trust you.

[00:46:57] And that's huge. And you know the, the second thing that is really remarkable. By the time that he got to this report, by the time the Jenner folks started investigating, you know, there were journalists, you know, scrambling all around the world, trying to understand what had happened and this had, this story had been picked over quite a bit, but yet they came up with probably the most damning fact about, you know, repo 105, which is again, just an extraordinary testament to their investigative abilities.

[00:47:30] And, of course, we talked about, you know, just the accuracy and the, the the expectation that every fact have a source and be backed up several times and, and I would just say lastly, you know, it's just, it was just such a, a service to the public to write in the way that they wrote, which is very clear.

[00:47:53] Anybody. You didn't have to have an MBA to understand what happened to Lehman after reading that report. You know, one of the great trial lawyers, David Boies, once said, it's easy to be accurate if you have the freedom to be complicated, and it's easy to be simple if you have the freedom to shade the truth.

[00:48:08] What's hard is to be simple and accurate, and I think they were simple and accurate. 

[00:48:14] Murray Coffey: Without a doubt. I think also sort of the, the, the legacy, and we do talk a little bit about the legacy. The legacy here is. One in which they're, they're the regulators, the, the, the, the folks who are, who should have their, their hands on the levers realized where maybe they didn't have their hands on the levers where they needed to talk to one another.

[00:48:35] And I think that served the economy and, uh, and, uh, you know, uh, our country well, so just an incredible legacy from, uh, one of our great storytellers. 

[00:48:48] Andrew Longstreth: Absolutely. And I'm looking forward to more of these, Murray. It's, it was a, it's really a great inaugural episode. 

[00:48:55] Murray Coffey: Oh, without a doubt. Hey, Andrew, uh, thank you.

[00:48:58] Uh, as always, uh, a pleasure to, to be working with you and thank you to Tony and folks, the folks at Jenner, um, and Infinite Global. So this has been great. 

[00:49:10] Andrew Longstreth: We'll see you soon. 

[00:49:12] Bye. 

[00:49:13] Murray Coffey: Bye now.