A group of unsecured Lehman Brothers creditors
have filed a request with the New York bankruptcy court, seeking to
gain access to Ernst & Young documents relating to its audit of
the failed bank.

If the request is granted, it could mean
millions of pages of emails, memos, internal documents and audit
documents, dating from January 2005, will be made public, according
to US media reports.

Fuld defends Lehman’s use of Repo
105

Lehman Brothers former chairman and chief
executive Richard Fuld and the US Securities and Exchange
Commission (SEC) have also been under investigation over their
roles in the bank’s collapse.

Fuld defended the use of accounting
transaction Repo 105 in a hearing at the US House Committee on
Financial Services.

US court appointed investigator Anton
Valukas claimed in a recent report that Lehman Brothers used
Repo 105 to temporarily move $50 billion off its balance sheets in
late 2007 and early 2008.

Fuld told the government panel these
transactions complied with US accounting rules and did not
contribute to Lehman’s bankruptcy.

He also stated that Valukas did not
dispute that Lehman appropriately accounted for those
transactions.

Under fire

At the same hearing, the government panel
criticised the SEC’s failure to spot the accounting move Lehman
used.

Defending the SEC, chairman Mary Schapiro, who
was not chairman at the time, claimed that Lehman did not disclose
it was undertaking repos (repurchase agreements) as sales.

She said the disclosures made it appear that
Lehman accounted for all of its repos as financings, which were
reported as such on its audited balance sheet.

Schapiro added the SEC is still investigating
Lehman’s use of repos.

Schapiro said Valukas’ report raised critical
questions about the use of these transactions to manage Lehman’s
balance sheet at the close of financial reporting periods and also
raises questions as to how widespread this practice maybe.

“We have requested detailed information from
multiple large financial institutions about their use of repurchase
agreements or similar transactions and related accounting and
disclosures, and will take appropriate action when necessary,”
Schapiro said in her testimony.

The SEC has now requested financial
institutions:

  • Describe their accounting for these
    transactions, their business purpose for engaging in them and their
    impact upon liquidity;
  • Provide detailed information about the
    financial statement impact of these transactions throughout each
    quarter; and
  • Discuss how that impact differed from that
    presented at each quarter end.