– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –
By Hugo Dixon
LONDON, March 16 (Reuters Breakingviews) – Lehman Brothers’ now notorious “Repo 105″ scam depended on forum shopping. The investment bank was not able to persuade U.S. lawyers that the relevant repurchase agreements constituted real sales.
So it routed them through its UK subsidiary. That meant they came under the English legal system, and law firm Linklaters was able to opine that the transactions counted as sales.
U.S. accounting apparently did the rest, allowing Lehman to shuffle $50 billion dollars of assets off its balance sheet. Regulators in different jurisdictions need to cooperate to close all such gaps they can.
Forum shopping, also known as regulatory arbitrage, is undesirable, but smart bankers are always going to do it.