Lehman Brothers is confident that it will be exonerated from charges of colluding to evade tax by citing official guidelines allowing it to set up Global Thai Property Fund.

The US financial house yesterday met with the Department of Special Investigation (DSI) to submit documentary evidence, a source said.

The package included the directive from the Financial Sector Restructuring Authority (FRA) giving winners of auctions for the assets of the now-defunct 56 finance companies a month to establish a property fund to manage the assets, he said.

The DSI will contact Lehman Brothers about its decision at the beginning of June, he said.

Lehman Brothers had signed a purchase agreement with the FRA within seven days of winning the bidding, as required by the FRA, the source added.

Lehman Brothers won bids in August 1998 for Bt11.52 billion out of a total of Bt24.62 billion worth of corporate loans, with property as collateral, put up for sale by the FRA.

However, it transferred the rights to the assets to the Global Thai Property Fund, which it set up in October 1998, leading to the question of whether the company had intended to evade taxes.

The DSI last month summoned Lehman Brothers to inform it officially of the allegations.

The DSI also told the investment bank that if it could produce convincing evidence in its defence, the case would be dropped.

The procedures for bidding, announced in June 1998, were aimed at maximising prices by exempting the deals from tax, the source said. "In practice, nobody would set up a property fund before an auction as they would have to spend hundreds of millions of baht even though they didn't know whether they would win."

Lehman Brothers was not an isolated case, he said. Kiatnakin Finance - since upgraded to Kiatnakin Bank - and a joint venture of GE Capital and Goldman Sachs also set up property funds to manage the assets they won.

Although eyebrows have been raised about the appropriateness of Lehman Brothers acting as the FRA's investment adviser at the same time it was participating in the bidding, the source said such a practice was common overseas.

"If Lehman Brothers had benefited from insider information, the gap between its offer and the next highest ones would be a few baht. In fact, Lehman Brothers' bid was 26 per cent higher than the next highest conforming bid, at Bt9.1 billion," the source said.

Lehman Brothers employs a "Chinese Wall" between its roles. Its global reputation would suffer if it used insider information, he said.

The FRA most likely did not separate good and bad assets before auctioning them as only 4-5 per cent were performing, he added.

"Almost all of the customers of the 56 finance firms ceased servicing their debts as they didn't know who was in charge after the finance firms were shut down," he said.

Lehman Brothers will continue to defend itself if the DSI decides to take the next step and let the Attorney-General's Office decide whether to prosecute, he said.

"The materials submitted [to the DSI] clearly explain that Lehman Brothers did act entirely in accordance with the FRA guidelines and Thai law," the firm said in a statement.

Siriporn Chanjindamanee

Oranan Paweewun

The Nation