Labor & Employment Law

Lehman Probe stalls in $50 Billion real estate accounting maneuver

By Dobin & Jenks

A legal gray area may derail an attempt by Securities and Exchange Commission officials to seek a civil or criminal suit against executives of the now defunct Lehman Brothers Holding Inc.

For months now, SEC officials have been hoping to charge former Lehman Brothers executives with duping their investors with an accounting strategy that is commonly known as Repo 105. In such a maneuver, a short term loan is classified as a sale on company balance sheets. The proceeds of this so-called sale are then used to reduce company debt in advance of publication of the company?s balance sheets. Once the sheets have been made public, the company borrows funds in order to repurchase their original assets. The strategy provides the investing public with an improved version of the company?s actual financial records, leading them to continue to invest, or remain invested, when a more realistic accounting of the company?s financial records might lead them to choose to invest elsewhere.

Full post as published by The Law Planet Blog on March 16, 2011 (boomark / email).