Oct. 6 (Bloomberg) -- Richard Fuld, the chief executive officer of Lehman Brothers Holdings Inc., may tell legislators angry about Wall Street's excesses that eroding confidence in the financial system led to the demise of his firm.

Fuld's testimony to the House Committee on Oversight and Government Reform later today will be his first public appearance since Sept. 10, five days before New York-based Lehman filed for bankruptcy.

Lehman, once the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create. The 158-year-old company collapsed after concern about ongoing losses from its mortgage portfolio spooked investors and creditors. While the mortgage meltdown forced two other Wall Street firms to sell themselves to bigger banks, Lehman declared bankruptcy, the biggest in history, after failing to find a buyer.

``Fuld will tell Congress it's an unprecedented crisis, he'll talk about unforeseen circumstances,'' said Sean Egan, president and founder of Egan-Jones Ratings Co. in Haverford, Pennsylvania. ``But the reality is Lehman was extremely leveraged, like other Wall Street firms. The emperor was caught without his clothes in the rain.''

Lehman may have misled clients and investors about the extent of its losses in the days leading up to the bankruptcy, the Wall Street Journal reported, citing filings and interviews. In a Sept. 10 conference call, Lehman executives told investors its capital levels were alright a day after the company determined it needed to raise at least $3 billion, the newspaper said, citing unidentified people familiar with the matter. Lehman also may have overvalued its real estate holdings, the paper said.

`Financial Excesses'

The Congressional committee, chaired by California Democrat Henry Waxman, is looking into ``regulatory mistakes and financial excesses that led to the bankruptcy filing,'' according to the committee's Web site. The company's implosion ``sparked a financial crisis on Wall Street that is causing massive economic disruption,'' Waxman said in an e-mailed statement.

``We need to understand why Lehman failed and who should be held accountable,'' Waxman said. ``The taxpayers are being asked to pay $700 billion to bail out Wall Street. They are entitled to know who caused the meltdown and what reforms are needed.''

Darrell Issa, a California Republican and member of the committee, predicted that Fuld and former officials of American International Group Inc. scheduled to appear tomorrow will face heavy criticism from Democrats.

The hearings ``are all about rich people getting money,'' Issa, a Waxman critic, said in an interview on Oct. 3. ``Henry Waxman hates rich people.''

24 Boxes

Fuld was awarded $40 million last year, when the firm reported record earnings of $4.2 billion.

Issa said the committee has received 24 boxes of documents related to the panel's inquiry. He said he didn't expect the hearings to uncover much new information. Fuld declined to be interviewed.

Fuld, 62, the longest serving CEO on Wall Street, is the only Lehman executive appearing before the committee. Former AIG Chief Executive Officers Robert Willumstad, Martin J. Sullivan and Maurice R. Greenberg are scheduled to testify on Oct. 7.

Bear Stearns Cos. was the first Wall Street firm felled by the mortgage meltdown, taken over in May by New York-based JPMorgan Chase & Co. in a deal orchestrated by the Federal Reserve. Lehman surpassed Bear Stearns as the biggest underwriter of mortgage-backed bonds last year, while lax lending standards to subprime borrowers were starting to push up default rates.

AIG Loan

Merrill Lynch & Co., the third-largest U.S. securities firm, agreed to be sold to Bank of America Corp. the same weekend that Lehman collapsed. Goldman Sachs Group Inc. and Morgan Stanley, the top two Wall Street firms, converted themselves into commercial banks in response to concerns their funding bases are also shaky and have sold shares to boost capital.

The week following Lehman's collapse, the U.S. government loaned AIG, the largest U.S. insurance company, $85 billion to prevent its demise and prepared a $700 billion rescue package to buy troubled mortgage assets from banks. The House of Representatives rejected the package in the first attempt to pass it on Sept. 29, partly because of objections that it would aid CEOs who were responsible for the problem. An amended measure passed the Senate and House and was signed into law on Oct. 3

`Biggest Mistake'

Fuld is still the CEO of Lehman's holding company. Executives of Alvarez & Marsal, the turnaround specialist hired to oversee the restructuring during the bankruptcy, have taken the positions of chief financial officer, co-treasurer and co- chief operating officer.

Fuld joined Lehman in 1969 at the age of 23. He was head of trading when the firm was sold to American Express Co. in 1984 after a row between investment bankers and traders. While the top executives left before or soon after the merger, Fuld remained at the firm, eventually convincing American Express to spin it off. He was the first CEO of Lehman when it went public in 1994.

While credited for having turned the company into one of the powerhouses of Wall Street, Fuld was also criticized for piling into mortgages, even as the market was breaking apart.

``His biggest mistake was not understanding the risk side,'' Egan-Jones's Egan said.

Lehman's leverage -- the ratio of total assets to shareholders' equity -- was 31 last year when the mortgage market plummeted. That compares with 33 at Morgan Stanley and 32 at Merrill Lynch. Only Goldman Sachs had a lower ratio, at 22.

Securities Stockpile

Since the collapse of the subprime home-loan market last year, the world's biggest banks and brokerages have reported almost $600 billion of writedowns and credit losses on securities tied to mortgages. Lehman still had a $50 billion stockpile of the investments at the end of August. Falling housing prices and fear of a U.S. recession have eroded prices for the holdings.

Founded in 1850 by three immigrants from Germany, Lehman averted previous potential disasters and was among a handful of U.S. financial firms that endured for more than a century.

Instability in the financial and credit markets left Lehman officials struggling to keep the firm afloat, Ian Lowitt, the firm's former CFO, said in a court filing.

``The uncertainty, particularly among the banks through which the company clears securities trades, ultimately made it impossible for the company to continue to operate its business,'' Lowitt said in the filing.

To contact the reporters on this story: Yalman Onaran in New York at yonaran@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net.

Last Updated: October 6, 2008 03:35 EDT