Financial Regulatory Forum

Legal Opinions and Ernst & Young: The Grim Repo’s next targets? – Westlaw Business

By Erik Krusch (Westlaw Business)

Legal opinions underpin the Lehman-related lawsuit against Ernst &Young (E&Y) by New York Attorney General Andrew Cuomo, and both lawyers and auditors can’t help but take note. The AG alleges that Lehman’s then-auditor E&Y provided substantial assistance to Lehman in its perpetrating a massive financial fraud. In particular, Cuomo has charged the accounting giant with three counts of securities fraud under the Martin Act and a charge of persistent fraud and illegality brought under the Executive Law § 63(12) of New York.

The AG’s case centers on Lehman’s use of the now notorious Repo 105 to lower its leverage levels. Lehman accounted for Repo 105, which amounts to selling securities for 105% of their value to counterparties with the agreement to repurchase the securities later, as sales rather than loans. It is standard practice to account for securities repos as loans. Repo 105 allowed Lehman to shift assets (and more to the point, “net leverage”) from the curious eyes of the ratings agencies, investing public and regulators. Ernst & Young signed off on this accounting from 2001 until Lehman’s demise in 2008. For additional information on Repo 105 please see the previous Westlaw Business Currents article The Tale of the Grim Repo: Lehman’s Link to True Sales.

(more…)

Ernst & Young charges highlight grey area in leverage accounting – Complinet

By Emmanuel Olaoye, Complinet

Civil fraud charges against Ernst & Young LLP have raised the question of whether accounting standards have become so specific that institutions view them as obstacles to maneuver around rather than guidelines for accurate reporting. Legal and accounting experts said that the suit filed by Andrew Cuomo, New York attorney general, was likely to mean the end for transactions such as the “Repo 105″ device at the center of the controversy, particularly if it led to a settlement. It could break new ground in the liability of accounting firms, they added.

The lawsuit has accused E&Y with improperly allowing Lehman Brothers to use a complex accounting transaction known as “Repo 105″ to reduce the apparent debt level of the failed investment bank, giving investors the impression that it had a lower level of debt than it actually did. The lawsuit has claimed that E&Y knew Lehman was treating the transfer of billions of dollars of securities in “Repo 105″ transactions as asset sales rather than loans. “Repo 105″ is the name of the accounting transactions that Lehman used to classify its short-term borrowings as sales. Lehman collapsed in September 2008, at the height of the global financial crisis.

“If there is a settlement this type of transaction would not be used again. The ‘Repo 105′ is radioactive. I don’t think accounting firms will be allowing their clients to use them again,” said Howard Schilit, founder and chief executive of the Financial Shenanigans Detection Group LLC.

Obama, New York law chief Cuomo target Wall Street bonuses

By Caren Bohan and Jonathan Stempel

WASHINGTON/NEW YORK, Jan 11 (Reuters) – The White House and and New York’s top prosecutor attacked excessive Wall Street bonuses, as the nation’s biggest banks prepare to hand out awards critics say were made possible by taxpayer bailouts.

A senior U.S. official also confirmed President Barack Obama is considering a fee on financial services firms as part of the fiscal 2011 budget he will unveil in February.

The proposal reflects tougher approach the White House is taking toward Wall Street as it faces rising political heat over its support for the $700 billion financial bailout begun in the Bush administration.

New York Attorney General Cuomo seeks 2009 bonus data from Wall Street

By Elinor Comlay and Jonathan Stempel

NEW YORK, Jan 11 (Reuters) – New York’s attorney general asked eight major U.S. banks to turn over data on planned bonuses for 2009, amid a growing public outcry over payouts in light of the industry’s role in the near-collapse of the financial system and recession.

Andrew Cuomo made the demand Monday to the banks that were first to receive federal bailout money in the fall of 2008: Bank of America Corp, Bank of New York Mellon Corp, Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co, Morgan Stanley, State Street Corp and Wells Fargo & Co.

These banks have all repaid infusions taken from the government’s much-maligned Troubled Asset Relief Program (TARP), though some of the U.S. investment in Citigroup has been converted into common stock.

Intel hit by NY antitrust suit, kickbacks alleged

A man stands in front of an Intel wall at the 2009 Computex trade show in Taipei June 3, 2009. REUTERS/Pichi Chuang   By Jonathan Stempel
NEW YORK, Nov 4 (Reuters) – Intel Corp was sued by New York Attorney General Andrew Cuomo, who accused the world’s largest chipmaker of threatening computer makers and paying billions of dollars in kickbacks to maintain its market dominance. The lawsuit accuses Intel of violating state and federal antitrust law through a “systematic worldwide campaign” of bullying and coercion to monopolize the market for personal computer chips, at the expense of rival Advanced Micro Devices Inc.

(more…)

Cuomo subpoenas 5 Bank of America directors

New York State Attorney General Andrew Cuomo answers questions during a news conference held on Wall Street in New York October 15, 2008. Cuomo is investigating what he contends is "unwarranted and outrageous" spending by American International Group Inc. even as the struggling insurance giant receives $123 billion of U.S. government funding to stay alive.    REUTERS/Brendan McDermid (UNITED STATES)   By Jonathan Stempel
   NEW YORK, Sept 16 (Reuters) – Ratcheting up pressure on the largest U.S. bank, New York Attorney General Andrew Cuomo has subpoenaed five current or former Bank of America Corp <BAC.N> directors to learn what they knew about Merrill Lynch & Co’s problems as the companies prepared to merge. (more…)

Bank of America-SEC bonus pact rejected; Cuomo eyes charges

Bank of America CEO Kenneth Lewis pauses as he speaks at the National Urban League Conference in Chicago July 30, 2009. REUTERS/John Gress By Jonathan Stempel and Grant McCool
NEW YORK, Sept 14 (Reuters) – A federal judge rejected Bank of America Corp’s $33 million settlement with the U.S. Securities and Exchange Commission over Merrill Lynch & Co bonuses as a contrivance, and New York’s top legal officer prepared to sue senior bank executives.

(more…)

  •