When Lehman Brothers went bankrupt, it had 209 registered subsidiaries in twenty-six jusrisdictions around the globe: sixty in the US state of Delaware alone, thirty-eight in the UK, and thirty-two in the Cayman Islands, eleven in Australia, nine in Hong Kong, and nine in Japan. This does not include the hundred, perhaps thousands, of special-purpose vehicles (SPVs) in the form of trusts and limited liability companies. The parent company, Lehman Brothers Holdings Inc. (LBHI), had used the shares of the subsidiaries as collateral in order to raise debt for them. The profits of the subsidiaries had moved most of their profits to the parent, leaving few assets for their creditors. When LBHI went bankrupt, it could no longer guarantee the debt of the subsidiaries, and they could not refinance their debt, so they fell like dominoes. Lehman Brothers had taken advantage of the fact that the cost and time taken to create legal shell entities had become negligible. In addition, companies no longer needed to do business in the place they were incorporated, in order to enjoy the full privileges and powers of incorporation. LBHI divided its operations, liabilities and profit centers among hundreds of legal entities. The assets of LBHI consisted mostly of shares of its subsidiaries, and received income in the form of dividend payments and other transfers. The subsidiaries needed debt financing (if they had issues shares to outside shareholders, it would have diluted the parent's control.) So LBHI traded away its limited liability by guaranteeing the debt of all its subsidiaries. > In short, the legal structure of Lehman Brothers resembled a family that sells off the family home to send the kids to college, giving each child a credit card that is drawn on the parents’ account, which will be replenished only with money the children will send home someday. The shareholders of LBHI themselves were protected by the limited liability shield. With only their initial investment at stake, they could continue to squeeze out returns for themselves using maximum debt financing. They received millions of dollars in dividends long after housing markets started declining. The company paid $631 million to its shareholders in the final 2 years of its existence. ^[During this same period, Citigroup paid $16 billion, JP Morgan paid $11 billion, and Wells Fargo paid $10 billion to their shareholders.] Richard Fuld, its CEO, received half a billion dollars between 1993 to 2007. The creditors received only 21 cents for every dollar they loaned. --- Source: Pistor, Katharina. The Code of Capital (p. 54). Princeton University Press. Kindle Edition.