SEC questions Wall Street firms on use of repurchase agreements
Tuesday, March 30, 2010
The Securities and Exchange Commission is asking the largest Wall Street firms and U.S. insurance companies whether they are using the accounting techniques that Lehman Brothers adopted to hide $50 billion in liabilities in the months before its collapse.
The SEC said Monday that it has sent letters to the chief financial officers of nearly two dozen firms to ask detailed information about their use of transactions that temporarily transfer financial assets out of the firms.
Those transactions, frequently called "repurchase agreements," could allow a firm to show in accounting disclosures that it has fewer liabilities than it in fact has. As a result, the firm could appear to be less leveraged and stronger financially.
Lehman Brothers used such transactions to make it seem like it had more capital in reserve before it filed for bankruptcy in fall 2008, according to a report by the bankruptcy examiner, who called the transactions "deceptive."
In its letter, the SEC said it is reviewing annual reports for the financial firms and requested information dating back three years.
"We are looking at the Lehman activities very, very carefully," SEC Chairman Mary Schapiro said on CNBC on Monday. She said the SEC would review "every major financial institution very thoroughly."