By Michael Corkery, Wall Street Journal Blog

In June 2008, a dozen of Lehman Brothers Holdings’ top executives met secretly at a private dinning club on the Upper East Side off Manhattan to plot a palace coup.

The insurgents decided Chief Executive Dick Fuld and President Joe Gregory, two old friends who had run the securities firm for years, could no longer be trusted. They decided to push out Gregory and force Fuld to accept his resignation. “This was done behind my back,” Fuld said when told of Gregory’s fate.

Richard Fuld, with cohort
Joseph M. Gregory.New York Times

This just one of the juicy tidbits in a new, insider’s account of Lehman’s collapse, titled “ Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers.” It was written by Lawrence McDonald, a former vice president in distressed debt and convertible securities trading at Lehman.

McDonald’s book sheds new light on the first draft of Lehman history that often was refracted through the prism of the firm’s old guard, who were trying to put the best face on a disaster. Gregory’s resignation on June 12, 2008, for instance, was described at the time as that of a loyal lieutenant falling on his sword to quiet Lehman’s outside critics. Fuld reportedly refused to accept his resignation.

McDonald’s account, as told to him by colleagues who attended the dinner, gives new credence to the notion that there was deep dissension in the Lehman ranks and that Fuld, after some resistance, quickly agreed to Gregory’s ouster. Here are excerpts of McDonald’s description of the secret dinner meeting:

“The food was lavish, the claret would have met with the approval of Bobbie Lehman himself and the bill was $7,000….By the time Tom Humphrey (global head of fixed income sales) began to pass around a decanter of rich vintage port, it had become blatantly obvious that drastic action was called for.”

McDonald describes Fuld as “squirming in his chair” as he refused to deliver the bad news to his old friend, Gregory. The author also says Gregory “did not go quietly.” “Fingernail marks etched the top of his desk.”

McDonald’s writing at times is over the top and prone to hyperbole. The second half of the book, which details the firm’s collapse, is much more lively than the first part, which describes Lehman corporate history. It also seems clear that McDonald has his favorites at the firm. For example, he goes easy on Gregory’s successor, Bart McDade, whom others have criticized for not acting aggressively enough to pull the firm back from the brink after he became president in June 2008.

Any insider account is likely to be fraught with bias, but McDonald’s account is useful in revising the next draft of financial meltdown history. At least now we know that the future of Lehman, which ultimately ended in one of the largest bankruptcies in history, was being decided over a $7,000 Last Supper.