Comments on: E&Y tries to defend itself http://blogs.reuters.com/felix-salmon/2010/03/25/ey-tries-to-defend-itself/ A slice of lime in the soda Wed, 19 Jun 2013 21:53:37 +0000 hourly 1 http://wordpress.org/?v=3.4.2 By: Calley121 http://blogs.reuters.com/felix-salmon/2010/03/25/ey-tries-to-defend-itself/comment-page-1/#comment-13237 Calley121 Wed, 07 Apr 2010 14:21:10 +0000 http://blogs.reuters.com/felix-salmon/?p=3071#comment-13237 Although the Examiner’s Report expressly declined to take a position on the issue, it seems quite unlikely that Lehman’s repo 105 program in fact met the standards required by FAS 140 for off-balance sheet treatment. In particular, LBIE (Lehman’s UK entity) apparently repo’d two different “buckets” of securities in the UK: (i) securities that were already owned LBIE, and (ii) securities transferred to LBIE from U.S. Lehman entities. With respect to the second category, the means of transfer was a repo between the U.S. Lehman entity and LBIE. That repo between the U.S. Lehman entity and LBIE, however, would not be characterized as a true sale for U.S. bankruptcy law purposes; indeed, the very impetus for the repo 105 structure was Lehman’s inability to obtain a true sale opinion from a U.S. law firm for repos transacted by U.S. Lehman entities. And there lies the problem: the transfer of securities from U.S. Lehman entities to LBIE, and the characterization of such transfer for U.S. bankruptcy law purposes, were not addressed in the Linklaters UK legal opinion upon which Lehman depended for FAS 140 purposes (and one might conjecture that Lehman probably never informed Linklaters of the specific providence of the securities). Instead, the Linklaters UK legal opinion simply included an express assumption that there were no provisions of foreign law that would have any effect on the opinion. Accordingly, it is hard to imagine that Linklaters would still have been able to provide its UK legal opinion if there had been an explicit statement of the fact that certain of the securities that were repo’d in the UK by LBIE were first acquired by LBIE from U.S. Lehman entities in repo transactions that did not constitute true sales for U.S. bankruptcy law purposes. Although the Examiner’s Report expressly declined to take a position on the issue, it seems quite unlikely that Lehman’s repo 105 program in fact met the standards required by FAS 140 for off-balance sheet treatment. In particular, LBIE (Lehman’s UK entity) apparently repo’d two different “buckets” of securities in the UK: (i) securities that were already owned LBIE, and (ii) securities transferred to LBIE from U.S. Lehman entities. With respect to the second category, the means of transfer was a repo between the U.S. Lehman entity and LBIE. That repo between the U.S. Lehman entity and LBIE, however, would not be characterized as a true sale for U.S. bankruptcy law purposes; indeed, the very impetus for the repo 105 structure was Lehman’s inability to obtain a true sale opinion from a U.S. law firm for repos transacted by U.S. Lehman entities. And there lies the problem: the transfer of securities from U.S. Lehman entities to LBIE, and the characterization of such transfer for U.S. bankruptcy law purposes, were not addressed in the Linklaters UK legal opinion upon which Lehman depended for FAS 140 purposes (and one might conjecture that Lehman probably never informed Linklaters of the specific providence of the securities). Instead, the Linklaters UK legal opinion simply included an express assumption that there were no provisions of foreign law that would have any effect on the opinion. Accordingly, it is hard to imagine that Linklaters would still have been able to provide its UK legal opinion if there had been an explicit statement of the fact that certain of the securities that were repo’d in the UK by LBIE were first acquired by LBIE from U.S. Lehman entities in repo transactions that did not constitute true sales for U.S. bankruptcy law purposes.

]]> By: ContrarianP http://blogs.reuters.com/felix-salmon/2010/03/25/ey-tries-to-defend-itself/comment-page-1/#comment-12932 ContrarianP Fri, 26 Mar 2010 15:27:44 +0000 http://blogs.reuters.com/felix-salmon/?p=3071#comment-12932 Hi Francine, I posted an actual copy of the letter, rather than quoting from its contents. Also, for all we know, we're not technically talking about the same letter (though the content overlaps -- this is clearly part of an E&Y PR campaign), because my letter went to an audit-committee member of what is most probably a different company. I know this person and he gave me a copy. Hi Francine,

I posted an actual copy of the letter, rather than quoting from its contents.

Also, for all we know, we’re not technically talking about the same letter (though the content overlaps — this is clearly part of an E&Y PR campaign), because my letter went to an audit-committee member of what is most probably a different company. I know this person and he gave me a copy.

]]> By: FrancineMcKenna http://blogs.reuters.com/felix-salmon/2010/03/25/ey-tries-to-defend-itself/comment-page-1/#comment-12928 FrancineMcKenna Fri, 26 Mar 2010 03:53:59 +0000 http://blogs.reuters.com/felix-salmon/?p=3071#comment-12928 Felix, That letter from Ernst & Young to Audit Committee member was posted first on my site re: The Auditors on March 20th. http://retheauditors.com/2010/03/20/an-ernst-young-response-dear-audit-committee-member/ It was linked to by FT Alphaville, Reuters' Emily Chasan, the Times UK and Zero Hedge amongst others earlier this week. http://retheauditors.com/2010/03/21/ernst-young-and-lehman-brothers-a-summary-of-quotes-stories-and-links/ Felix,

That letter from Ernst & Young to Audit Committee member was posted first on my site re: The Auditors on March 20th. http://retheauditors.com/2010/03/20/an-e rnst-young-response-dear-audit-committee -member/

It was linked to by FT Alphaville, Reuters’ Emily Chasan, the Times UK and Zero Hedge amongst others earlier this week.
http://retheauditors.com/2010/03/21/erns t-young-and-lehman-brothers-a-summary-of -quotes-stories-and-links/

]]> By: ContrarianP http://blogs.reuters.com/felix-salmon/2010/03/25/ey-tries-to-defend-itself/comment-page-1/#comment-12913 ContrarianP Thu, 25 Mar 2010 18:57:40 +0000 http://blogs.reuters.com/felix-salmon/?p=3071#comment-12913 Here's the key question: whom was Lee blowing the whistle on? If your answer is "Lehman," you're only partly right. He was also blowing it on E&Y. And what did E&Y do with his most damning allegation (Repo 105)? E&Y *suppressed* it. Here’s the key question: whom was Lee blowing the whistle on?

If your answer is “Lehman,” you’re only partly right. He was also blowing it on E&Y.

And what did E&Y do with his most damning allegation (Repo 105)? E&Y *suppressed* it.

]]> By: HBC http://blogs.reuters.com/felix-salmon/2010/03/25/ey-tries-to-defend-itself/comment-page-1/#comment-12908 HBC Thu, 25 Mar 2010 17:23:17 +0000 http://blogs.reuters.com/felix-salmon/?p=3071#comment-12908 Give them their due, it's the old insanity plea of chartered accountants under the influence of untrammeled greed - insane to think they could get away with it. Give them their due, it’s the old insanity plea of chartered accountants under the influence of untrammeled greed – insane to think they could get away with it.

]]>