Posts Tagged ‘Repo 105’

Lehman CEO’s “Sergeant Schultz Defense” of Repo 105

Lehman CEO’s "Sergeant Schultz Defense" of Repo 105

Courtesy of Mish

Inquiring minds are interested in Lehman CEO Dick Fuld’s defense of Repro 105. Please consider Fuld Says Lehman Used Repo 105s to Satisfy Accounting Mandates.

Richard Fuld, the former chief executive officer of defunct Lehman Brothers Holdings Inc., said the Wall Street firm reported certain repo transactions as sales because accounting rules required it to do so.

“Lehman should not be criticized for complying with the applicable accounting standards,” Fuld said in the prepared text of testimony to be presented to Congress tomorrow.

Fuld reiterated that he had “absolutely no recollection whatsoever hearing about Repo 105 transactions while I was CEO of Lehman.”

Sergeant Schultz Defense

Do you believe Fuld did not know about Repo 105? I don’t. Moreover, Repro 105 was decidedly illegal so it is preposterous to propose "accounting rules required it to do so".

In essence Fuld is pleading incompetence. Moreover, he sounds just like Sergeant Schultz with his ridiculous attempts to exonerate himself. With any luck a smoking gun will turn up and Fuld will end up in prison where he belongs.

For more on Repo 105 please see Lehman’s Alter Ego – How Lehman Hid Risk In Shell Corporations; Where is The Indictment of Ex-CEO Dick Fuld?

Mike "Mish" Shedlock


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Investigation Begins Into E&Y's Role In Connection With Lehman's Repo 105 Scam

Investigation Begins Into E&Y’s Role In Connection With Lehman’s Repo 105 Scam

Courtesy of Tyler Durden

Fox Business reports that the investigation around Lehman is intensifying. Surely the SEC, now generically equated with objects that float around in sewers in formal conversation, has realized it has to do something, anything, to find at least one scapegoat for the financial collapse. Which is why we read with little surprise Gasparino’s report that "thee SEC has ramped up its inquiry into Lehman’s fall, particularly after court-appointed bankruptcy examiner Anton Valukas issued a lengthy report stating that Lehman’s top executives were “grossly negligent” in possibly hiding the risky nature of the firm’s finances during its final day." What we find much more interesting is that "yet another investigative agency, the Public Accounting Oversight Board — created under the 1992 Sarbanes-Oxley law to investigate and discipline public accounting firms — has launched an inquiry into the role of Lehman’s auditor, Ernst & Young, following the examiner’s report, which accused the big accounting firm of “professional malpractice,” for its work in approving accounting techniques Lehman used during its dying days in the summer of 2008." In the absence of any Wall Street villains, which it is now all too clear have endless diplomatic immunity from prosecution by the corrupt regulators, will the auditor, together with Dick Fuld, be made into the sacrificial lambs? Or will we continue the farce that anything even remotely related to capital markets integrity and reporting is real and valid? Judging by the nearly 60 days of no S&P downticks, the market has answered that question for us.

More from Gasparino:

It was the use of one of those accounting techniques, known as Repo 105, which appears to be at the top of the list of investigators, people with knowledge of the inquiry say. The use of the accounting technique, which is designed to temporarily lower the amount of “leverage,” or borrowing a firm uses to stay afloat thus lowering its risk levels, isn’t necessarily illegal. In fact, Lehman sought and received a favorable opinion from Ernst & Young to use the technique in 2008.

But what might fall afoul of the securities laws, according to people close to the inquiry, is if Lehman turned to the gimmick in a concerted effort to hide its risk level. One person with knowledge of the inquiry say investigators


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Chris Dodd Asks Department Of Justice To Probe Lehman Repo 105 And “Other” Accounting

Chris Dodd Asks Department Of Justice To Probe Lehman Repo 105 And "Other" Accounting

Courtesy of Tyler Durden

Not to worry Dick "Tragic, Mistaken Figure" Fuld – after all Repo 105, what was the line, merely "vindicated you." There is absolutely no need to jump on a one flight to Caracas.

Dick FuldMarch 19, 2010

The Honorable Eric H. Holder, Jr.
Attorney General of the United States
United States Department of Justice
950 Pennsylvania Avenue, NW
Washington, D.C.  20530

Dear Attorney General Holder:

I am deeply concerned about the facts that have come to light regarding the demise of Lehman Brothers and the accounting manipulation that contributed to it. I respectfully ask you to commission a task force to investigate the Lehman situation as well as other companies that may have engaged in similar accounting manipulation with a view to prosecution of employees or agents who contributed to any violations of the law.     

According to the Report of the U.S. Trustee-appointed Examiner Anton R. Valukas, Lehman presented a misleading picture of its financial condition to the public by using extensive repurchase agreements known as Repo 105 transactions. The Examiner found that "Lehman did not disclose its use — or the significant magnitude of its use — of Repo 105 to the Government, to the rating agencies, to its investors, or to its own Board of Directors." The result was to conceal its holdings of bad assets and to temporarily remove approximately $50 billion of assets from its balance sheet at the end of the first and second quarters of 2008. The Examiner found that Lehman used Repo 105 transactions for no other articulated purpose than to shrink its balance sheet at the quarter-end, in a manner that deceived investors and creditors about its true financial state and misleading others.     

We must work tirelessly to reduce the incidence of financial fraud in order to restore trust and confidence in the financial markets. A task force investigation and taking appropriate Federal actions in these matters will contribute to these goals.

Sincerely Christopher J. Dodd Chairman 

Portrait: Courtesy of Wall Street Cheat Sheet


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Excessive Use of Repo 105 is White Collar Crime

Excessive Use of Repo 105 is White Collar Crime

Woman looking at mannequins in store window

Courtesy of Joshua M Brown, The Reformed Broker 

I won’t bore anyone with a two page dissembling of Lehman‘s use of Repo 105 which we learned about from the report on its demise this week.  Rather, this post will simply be a sledgehammer that slams the obvious into the side of the blogosphere.

For the uninitiated, the scam that was being perpetrated by Lehman Bros senior execs and their auditors isn’t a new one, it was just pulled off on a massive scale, costing investors and the economy dearly.

Repo 105 was an accounting trick that allowed Lehman to temporarily shift $50 billion in liability off of their balance sheet just in time to show investors a quarterly report demonstrating reduced leverage.  Once the quarter was closed, Lehman would then repurchase (repo) that debt back onto its balance sheet.  And they did this several times.

This window dressing allowed the company to fake solvency and sucker in investors, both in the stock market and, the company had hoped, from the sovereign wealth funds it was flirting with.

They would hide tens of billions of dollars temporarily and then trot out "Rock Star CFO" Erin Callan to lie to the world on television about how everything in Lehmanland was just fine.

Auditors Ernst & Young, the Lehman Bros Board of Directors and especially the Senior Executives who signed off on this practice have committed a crime.  This is securities fraud.  Their culpability ranges from negligence to outright thievery.  It may be Ivy League caliber securities fraud, but it is fraud nonetheless.  And if technology or industrial executives had engaged in this exact same behavior, they’d be in court defending themselves right now.

Not much more to it.

Now we’ll see if Sarbanes-Oxley has any actual teeth or if it turns out to have only been an Enron band-aid all along.

Read Also:

Lehman Report May Point Way For Criminal Charges (Reuters)

Lehman Report Points Way To Plaintiffs, Not Prison (BusinessWeek)

Accounting Fraud, Short-Sellers & The SEC (TBP) 


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How Lehman, With The Fed’s Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility

How Lehman, With The Fed’s Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility

Courtesy of Tyler Durden

Five months ago, Zero Hedge observed the nuances of the Federal Reserve’s Primary Dealer Credit Facility (PDCF) and concluded that this artificial liquidity boosting construct was nothing more than yet another scam to allow banks to extract ever more money from taxpayers, with the complicit blessing of the Federal Reserve Board Of New York (as the original piece also provided an in-depth discussion of the triparty repo market which is now a parallel to the buzzword of the day in the form of Lehman’s "Repo 105" off balance sheet contraption, it should serve as a useful refresher course to anyone who wishes to understand why while Repo 105 with its $50 billion in liability contingency may have been an issue, the true Repo market, with over $3 trillion of likely just as toxic assets, is where the real pain in the future will come from). The PDCF would allow assets of declining and even inexistent value to be pledged as collateral, thus making sure that taxpayer cash was funneled into sham institutions holding predominantly toxic assets, and whose viability was and is limited, yet still is backed by the Fed, which to this day continues to pour our money into them. Today, with a tip from the NYT’s Eric Dash, we demonstrate just how grossly negligent the Federal Reserve was when it came to Lehman’s abuse of the PDCF, and how the trail of slime of Lehman’s increasingly obvious manipulation of its books goes to the very top of the Federal Reserve Bank of New York, and its then governor – a very much complicit Tim Geithner.

1. The Liquidity Conundrum And the PDCF

In our original piece, we posited the following observation on the Fed’s constant involvement in liquidity provisioning, particularly in the context of the repo market:

Here is the liquidity crunch in its full flow-chart glory:

  1. If can not obtain short-term (overnight or term) funding in repo market, go to Eurodollar market
  2. If can not obtain short-term funding in Eurodollar market (LIBOR), go to asset sales
  3. If asset sales are impossible due to lack bids, illiquid markets, and collateral consists of toxic MBS and CCC-rated junk bonds, yet margin calls are streaming and repo counterparties are demanding their


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Phil's Favorites

How to make fragile global supply chains stronger and more sustainable

 

How to make fragile global supply chains stronger and more sustainable

Shipping containers are moved from the Fairview Cove Container Terminal In Halifax in May 2021. THE CANADIAN PRESS/Andrew Vaughan

Courtesy off Adel Guitouni, University of Victoria; Cynthia Waltho, University of Victoria, and Mohammadreza Nematollahi, University of Victoria

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Ethereum: the transformation that could see it overtake bitcoin

 

Ethereum: the transformation that could see it overtake bitcoin

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Courtesy of Daniel Broby, University of Strathclyde

The world’s second most valuable cryptocurrency, ether, has been touching all-time highs in price ahead of a major upgrade of its underlying platform, ethereum. Ether is currently worth in aggregate just shy of US$500 billion (£363 billion). That’s still slightly less than half that of the biggest cryptocurrency, bitcoin.

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Wait Until All These New Homebuyers See Their Property Taxes Go Up Next Year

Courtesy of ZeroHedge View original post here.

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Trump wants the National Archives to keep his papers away from investigators - post-Watergate laws and executive orders may not let him

 

Trump wants the National Archives to keep his papers away from investigators – post-Watergate laws and executive orders may not let him

Nixon resigned after tapes he had fought making public incriminated him in the Watergate coverup. Bettmann/Getty

Courtesy of Shannon Bow O'Brien, The University of Texas at Austin College of Liberal Arts

The National Archives is the United States’ memory, a repository of artifacts that includes everything from half-fo...



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An infectious disease expert explains new federal rules on 'mix-and-match' vaccine booster shots

 

An infectious disease expert explains new federal rules on ‘mix-and-match’ vaccine booster shots

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Courtesy of Glenn J. Rapsinski, University of Pittsburgh Health Sciences

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Price and Volume Swing Analysis on Bitcoin and Silver

Courtesy of Read the Ticker

Many take guidance from news, pundits or advisors. Well sometimes the swings of price and volume are a better measure of what happens next.

The big boys do not accumulate or distribute in single 1 second trade, they build positions over weeks, months and years. They use price swings in the market to build or reduce positions, and you can see their intent by studying swings of price and volume and applying Tim Ord logic as written in his book called 'The Secret Science of Price and Volume: Techniques for Spotting Market Trends, Hot Sectors, and the Best Stocks'.

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Promotions

Phil's Interview on Options Trading with TD Bank

TD Bank's host Bryan Rogers interviewed Phil on June 10 as part of TD's Options Education Month. If you missed the program, be sure to watch the video below. It should be required viewing for anyone trading or thinking about trading using options. 

Watch here:

TD's webinar with Phil (link) or right here at PSW

Screenshots of TD's slides illustrating Phil's examples:

 

 

&n...



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Crude Oil Cleared For Blast Off On This Dual Breakout?

Courtesy of Chris Kimble

Is Crude Oil about to blast off and hit much higher prices? It might be worth being aware of what could be taking place this month in this important commodity!

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Q4 2020 hedge fund letters, conferences and more

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Suez Canal: Critical Waterway Comes to a Halt

 

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The Suez Canal: A Critical Waterway Comes to a Halt

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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