Tuesday, June 28, 2011

Lehman Update

A few days ago my dad and I were wondering when we were going to hear additional news about the status of the Lehman Bros Repo 105 case.  It turns out we missed a Bloomberg article about the issue a few weeks ago.  According to the article the SEC is having a hard time finding sufficient evidence to sue Lehman for their use of Repo 105 transactions.  Here is an excerpt from the article:

SEC enforcement lawyers, who have struggled for more than two years to find definitive evidence that the company and its leaders violated securities laws, are concerned that a legal attack on Lehman’s accounting practices would likely fail, the people said, speaking on condition of anonymity because the deliberations aren’t public.
Instead, the enforcement staff may recommend that the agency take the rare step of publishing a so-called report of investigation, also known as a 21(a) report. The commission would have to vote on whether to issue a report and it’s still possible that the SEC may decide to bring legal claims in court, the people said. The 21(a) reports, which lay out allegations of misconduct without imposing penalties, have only been issued six times in the past decade, according to the SEC’s website.

So basically it sounds like Lehman is going to get a glorified slap on the wrist.  A big questions that still remains is how this will impact lawsuits against Ernst and Young, Lehman's auditor.  While I am not a legal expert, I would expect that the difficulty in finding sufficient evidence to bring a civil suit against Lehman will also make it more difficult to prove wrongdoing by Lehman's auditor.

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