"I will hurt the shorts, and that is my goal."

Those were the words of Lehman Brothers (NYSE:LEH) CEO Richard Fuld back in April, referring to short-sellers who remain bent on driving the company's stock into the ground. Shares remain below where they rebounded to after March's Bear Stearns saga, but Fuld wasn't messing around.

It's one of the most bizarre twists of the financial mess of the past year. On the day when market rumors surfaced that it would raise more capital, Lehman did practically the exact opposite: It bought back its own shares.

Show 'em who's the boss, Fuld!
Shares had tumbled by nearly 15% at one point Tuesday amid the capital-raising news, which, if true, could have been a dilutive nightmare for investors dealing with a stock that's been cut in half this year. Swooping in on the pessimism, and perhaps curtailing what could have been an even bloodier day, Lehman purchased an undisclosed number of shares.

Personal vendettas against short-sellers aside, was Lehman's move justified? It's hard to argue that the shares weren't cheap, trading around 22% below the most recent book value. Then again, holes have been poked in the way Lehman values assets, so our debate over book value might get as philosophical as questioning what the definition of "is" is. But as a public company looking out for its shareholders, Lehman has every right to purchase shares it deems cheap. And with around $40 billion in liquid assets, it has the ammo to do it.

But ...
What seems a little odd is that in recent months, Lehman -- along with fellow brokers like Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) -- tested the Fed's discount lending window, which was opened earlier this year to investment banks in a move to prevent another Bear Stearns-style implosion. While part of Tuesday's rumors was based around making another trip to the discount window, Lehman vehemently denied this.

Lehman has held firm that its capital levels remain adequate, which may very well be the case. Unfortunately, Bear Stearns thought the same thing just days before it fell apart. Knowing full well the consequences of being caught off guard, and having borrowed money from the Fed in recent months, what was Lehman doing buying back shares? Perhaps the battle with short-sellers has turned personal, perhaps the company truly feels it's overcapitalized, perhaps the share price was just too good to pass up. But as the old saying goes, "Fool me once, shame on you; Fool me twice, shame on me." Let's hope Bear taught Lehman a thing or two.

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