Philip Lehman Turned Away a Famous Swindler Because He Could Not Understand the Deal
His rule was plain: if he could not understand a deal from his notes, he would not buy it.
Founders · The Merchant BankersIvar Krueger came one day to ask Lehman Brothers to be his banker. He sat with Philip Lehman, the patriarch who headed the firm, and spoke at length about his business. Lehman listened and wrote a little on a single page.
Krueger was a persuasive figure. He had trained as an engineer in Sweden and had built a global monopoly in matches, and he was known for corporate polish that charmed investors and lenders.
The meeting mattered because Krueger was secretly behind a fraud ranked among the largest Ponzi schemes in history. A Ponzi scheme is a fraud in which money from new investors is used to pay old ones, until there is not enough new money to keep it going.
When Krueger finished, he sat back to wait for an answer. Lehman shook his head. The answer was no.
Philip Lehman said, "I have a rule Mr. Krueger. If I cannot understand something by reading my notes on the subject, I won't buy it. You're too complex for me."
Krueger left without getting what he came for. A few months later, he shot himself.
Questions people ask
How did the match business make Krueger so powerful?
Krueger bought up match factories around the world in the 1920s and controlled much of the global supply. He then used that monopoly to raise huge loans from investors and governments, promising steady returns while secretly using new money to pay old debts.
How big was Krueger's fraud when it fell apart?
At its peak, his empire owed investors the equivalent of several billion dollars today, making it one of the largest frauds of its time. When he died in 1932, the collapse wiped out savings, shook major banks, and helped tighten securities laws.
Is this the same Lehman Brothers that collapsed in 2008?
This Lehman Brothers was much earlier, when the firm acted as a private merchant bank built on reputation and personal judgment. The Lehman Brothers that failed in 2008 was a much larger, later investment bank operating in a very different world.