SEC asks others if used Lehman accounting gimmick

[March 30, 2010]  WASHINGTON (AP) -- The Securities and Exchange Commission is asking the biggest U.S. financial institutions for information on their use of a specific accounting device, as regulators investigate Wall Street's actions in the run-up to the financial crisis of 2008.

The SEC's request, in letters to the chief financial officers of nearly two dozen large financial firms and insurance companies, follows revelations that Lehman Brothers used the so-called Repo 105 device to mask tens of billions of dollars in debt before it collapsed in September 2008.

Lawmakers and regulators want to know if the same sort of accounting gimmick was widely deployed on Wall Street.

The SEC said Monday that it had sent the letters seeking information on the companies' use of repurchase agreements, their accounting for them and disclosure of them. It did not name the companies.

The SEC's review of the Lehman Brothers disaster "has taken us down a path where we're looking broadly," SEC Chairman Mary Schapiro said recently.

The implosion of Lehman Brothers Holdings Inc. into the biggest bankruptcy in U.S. history precipitated the financial meltdown that plunged the economy into the most severe recession since the 1930s.

The court-appointed bankruptcy examiner in the case found that Lehman put together complex transactions that allowed the firm to sell "toxic," mostly mortgage, securities at the end of a quarter -- wiping them off its balance sheet when regulators and shareholders were examining it -- and then to quickly buy them back. Thus, the "Repo," meaning repurchase.

[Associated Press]

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