Too big to jail? Inside the failed Lehman inquiry

At a closed-door meeting in early 2011, Wall Street regulators were close to throwing in the towel on their biggest case.

The Securities and Exchange Commission's (SEC) eight-member Lehman Brothers team, having hit one dead end after another over the previous two years, concluded that suing the bank's executives would be legally unjustified.

The group, noting that prosecutors and FBI agents had already walked away from a parallel criminal case, reached unanimous agreement to close its most prominent investigation stemming from the financial crisis, according to officials who attended the meeting, which has not been reported previously.

But Mary Schapiro, the SEC chairwoman, disagreed. She pushed George Canellos, who supervised the Lehman investigation as head of the SEC's New York office, to explain how executives who presided over the biggest bankruptcy in the history of the United States could escape without a single civil charge.

"I don't get it," she said during a tense exchange with Canellos in her private conference room in Washington, according to the officials.

"Why is there no case?" she continued, staring at Canellos, instructing him to continue investigating whether Lehman misled investors. "The world won't understand."

She was right. Five years after Lehman's collapse hastened a worldwide economic panic, the government faces lingering questions about the decision to spare executives like Richard Fuld, who ran Lehman for 14 years until its demise.