"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

You'd think those famous words by Warren Buffett would resonate throughout the business world. For firms operating in the financial services industry -- where few companies seem to have a clue what lies inside their own books, let alone their neighbors' -- how the market perceives your actions should be priority No.1.

When you're Lehman Brothers (NYSE:LEH), this rule should be taken to the extreme. Short sellers are on the prowl, investors have lost hope, and a string of pathetic results have left the company staring eye-to-eye with trouble.

Shhh … they'll never know …
According to Bloomberg, Lehman has sold around $4.5 billion worth of assets to a newly formed hedge fund named R3 Capital Partners since May. That alone isn't a problem; Lehman has truckloads of assets it should probably shed. What amounts to Enron-esque shadiness, however, is that R3 is run by a team of recently departed Lehman employees, is run out of Lehman Brothers' office space, and, drumroll please … counts Lehman Brothers as a significant investor.

It's not difficult to guess what's going on here: Assets that wouldn't fetch potato chips in the open market can be sold to R3 which, as a hedge fund, can largely keep quiet about its dealings. Compared to Lehman -- which practically has to disclose to the SEC whenever top executives use the bathroom -- R3 could be a pretty snazzy game of "catch me if you can."  

Now, there's really no evidence to suggest that's what's going on. More importantly, that's the problem; there's really no information outside of Lehman having a seriously questionable relationship with R3. The lack of specifics gives already nervous investors reason to panic. One of the few things an insider has acknowledged is that Lehman has invested about $1 billion in R3.

Mmm-hmm …
The question now becomes, if there really is nothing sketchy about Lehman's relationship with R3, why in the world is Lehman making a $1 billion investment in the first place? For the love of Pete, Lehman's liquidity has been the topic of who knows how many short-selling gossip circles -- the last thing on Lehman's to-do list should be making strategic investments into hedge funds. Lehman needs to hang on to two things to make it in the short term: cash and reputation. Regardless of the outcome, its investment in R3 has squandered both.

Come on, Lehman. Even the big dogs like Goldman Sachs (NYSE:GS) and Bank of America (NYSE:BAC) are being slaughtered right now. When you're at the bottom of the food chain, the last thing you want to do is make yourself more vulnerable to attack.

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