Keeping Callan and Gregory in the Lehman Tent

It’s standard practice for Wall Street firms to retain executives tied to extensive financial losses and persistent questions about accounting practices, particularly if there is the likelihood of lawsuits. So I note with great interest that that Erin Callan and Joseph Gregory, who today “resigned” respectfully as CFO and COO of Lehman Brothers, will remain at the embattled firm, at least for now. Ms. Callan will rejoin the firm's investment banking division in an unspecified “senior capacity,” and Mr. Gregory will stay with the company in an “undefined capacity.” Suffice it to say, Callan and Gregory aren’t getting promotions.

It’s doubtful that Lehman is retaining the tarnished executives out of sheer loyalty. More probably, it’s out of concern for the litigation that will no doubt ensue. Company lawyers prefer to have all the major participants responsible for activities leading to litigation in the corporate tent, thereby having some measure of control over the proceedings. Throwing Callan and Gregory to the wolves could put their legal interests at odds with Lehman’s.

The irony of Ms. Callan returning to investment banking must also be noted. During her previous tenure there, Lehman took public both Fortress Capital and Och-Ziff and IPOs that certainly didn’t serve investors well. Since their respective public offerings, Fortress lost 56 percent of its value and Och-Ziff some 25 percent of its value. As I noted earlier, Lehman was also responsible for orchestrating Wachovia’s highly questionable takeover of Golden West.

Perhaps Ms. Callan had no involvement with the aforementioned deals. But given her track record as CFO, Ms. Callan’s return to Lehman’s investment banking group somehow doesn’t inspire further confidence in Lehman’s deal making prowess.