Eric Poer,¹ a Managing Director in Secretariat’s Global Investigations & Disputes practice, led a forensic accounting team retained on behalf of Lehman Brothers’ unsecured creditors in connection with one of the largest bankruptcies in U.S. history. The high-stakes dispute centered on the U.S. Internal Revenue Service (IRS) disallowing the creditors’ $450 million in foreign tax credits tied to Lehman’s bankruptcy, and to the firm’s complex securities lending and cross-border trading activities.

Mr. Poer led the workproduct and outside expert support team, serving as the financial analysis and data analytics lead supporting the creditors’ tax claims in federal bankruptcy court.

Although the disputed trades represented only a fraction of Lehman’s global business, government expert witnesses—presented by the U.S. Department of Justice (DOJ) on behalf of the IRS—characterized the activity as entirely tax‑motivated. Mr. Poer and his team demonstrated that Lehman’s UK subsidiary, Lehman Brothers International (Europe) (LBIE), generated millions in profits from the disputed trades, providing evidence of legitimate commercial purpose rather than a tax‑driven scheme.

To fortify the rebuttal, Mr. Poer conducted a targeted industry expert witness search and secured Ed Blount, a leading securities lending and finance practitioner with specialized knowledge and experience in the foreign tax credits space.

Working closely with Mr. Blount, Mr. Poer and his team forensically mapped cross-border loans by LBIE to demonstrate their economic substance and validate the legitimacy of the $450 million in foreign tax credits challenged by the IRS. They also delivered a key analytical breakthrough: LBIE routinely paid higher U.S. borrowing costs for certain non‑U.K. international stock even when no foreign tax credits were claimed, demonstrating that those costs reflected normal market practice—not evidence of tax motivation.

Mr. Blount’s testimony demonstrated how the DOJ’s experts fundamentally mischaracterized the economics of Lehman’s global equities business. To further support the rebuttal, Mr. Poer’s team showed that the DOJ’s expert had effectively analyzed profitability “backwards,” emphasizing sourcing costs rather than revenue‑generating uses of the borrowed securities. In rejecting the foreign tax credits, the IRS had applied an ‘economically wasteful’ standard that would have invalidated the majority of Lehman’s routine intercompany trading activity.

Mr. Blount, supported by Mr. Poer and his team, translated complex and detailed trading analyses into straightforward, credible testimony that aided the bankruptcy judge in a favorable decision for the client—demonstrating how deep industry knowledge, meticulous data analysis, and compelling expert testimony can overcome even the most aggressive regulatory challenges.

1. As of May 2024, Eric is a Managing Director at Secretariat. At the time of this engagement, Eric was a Senior Managing Director with FTI Consulting. ↩︎