An accounting gimmick called Repo 105 provided financial relief for Lehman Brothers in the months before its spectacular collapse, an autopsy of the once-venerable Wall Street house has found. The question now is whether the trickery spells legal jeopardy for executives of Lehman or its auditors Ernst and amp; Young. The implosion of Lehman Brothers Holdings Inc. into the biggest bankruptcy in US history in September 2008 precipitated the financial meltdown that plunged the economy into the most severe recession since the 1930s. How did it happen? After saddling itself with tens of billions of troubled assets that couldn't easily be sold, Lehman masked its debt and perilous financial condition by using the accounting artifice, an examiner appointed by the bankruptcy court found in a 2,200-page report on a yearlong investigation. The examiner, Anton Valukas, discovered that Lehman put together complex transactions that allowed the firm to sell “toxic,” mostly mortgage, securities at the end of a quarter – wiping them off its balance sheet when regulators and shareholders were examining it – and then to quickly buy them back. Thus, the “Repo,” meaning repurchase. “It's a very damaging report and certainly is something that is going to be carefully scrutinized by federal prosecutors,” said Robert Mintz, a former Justice Department prosecutor who is a private defense attorney. Now, thanks to the work by Valukas, Repo 105 has entered the pantheon of names of vehicles for accounting chicanery, along with Enron's Jedi, Chewco and Raptor partnerships and the “Buco Nero” (black hole) offshore account stashed away by the fallen Italian dairy giant Parmalat. In the sagas of those two companies, the role of the accounting firms was central.
