The revelations about the accounting shenanigans at Lehman Brothers get more appalling. These accounting tricks destroyed the financial institution which in turn created the financial crisis that destroyed jobs, investments and retirement incomes. Now we can blame all that on the accountants.
The New York Times reports how Lehman's number crunchers used a particularly aggressive accounting practice, known internally as Repo 105.
With Repo 105, they could temporarily exchange assets in return for short term loans and by doing so, temporarily park assets off the books to make those end-of-quarter debt levels look better than they did. They disguised that by calling these transactions sales instead of loans.
An e-mail from Bart McDade, former head of equities, suggested Lehman was addicted to Repo 105. "I am very aware… it is another drug we're on," he wrote, reports the BBC.
The trouble was no American law firm would sign off on their use. Enter a British law firm Linklaters which told Lehman that so long as the repos were conducted in London through the bank's European arm, and so long as the company took other cosmetic steps to make these transactions look kosher and appear as sales instead of loans, Linklaters would sign off on them. The big question: how the hell did this get past the auditors at Ernst & Young? Aided and abetted by lawyers helping the company defraud investors. So who was in whose pocket?
More to the point: could Lehman be Ernst & Young's Enron? We all remember how Andersen was destroyed when it colluded as Enron's auditor. Are we seeing history repeat itself?
"Financial fraud aficionados may have a sense of déjà vu," Joseph Grundfest, co-director of the Rock Centre on Corporate Governance at Stanford University told the Financial Times.
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