The US Securities and Exchange Commission
(SEC) is looking into how certain US public companies account for
repurchase agreements and other securities lending

The SEC’s Division of Corporation Finance has
sent a letter to an undisclosed number of public companies
requesting information on whether companies account for any
repurchase agreements as sales for accounting purposes in their
financial statements.

The request follows allegations made by US
court-appointed investigator Anton Valukas into Lehman Brother’s
use of repurchase transactions, known as Repo 105, in late 2007 and
early 2008, in the lead up to the investment bank’s collapse.

Valukas alleged Lehman Brothers used Repo 105
transactions to temporarily move $50 billion off its balance sheets
in May 2008.

In addition, the bank did not disclose its use
of Repo 105 to the US Securities and Exchange Commission.

The SEC said if companies do account for
repurchase agreements as sales it wants to know the answers to 11
questions, including:

  • The quantity of repurchase agreements qualifying for sales
    accounting at each quarterly balance sheet date for each of the
    past three years;
  • The average quarterly balance of repurchase agreements
    qualifying for sales accounting for each of the past three
  • All the differences in transaction terms that result in
    repurchase agreements qualifying as sales versus collateralised
  • The business reasons for structuring the repurchase agreements
    as sales transactions versus collateralised financings;
  • How the companies’ use of sales accounting for repurchase
    agreements impacts any ratios or metrics they use publicly, provide
    to analysts and credit rating agencies, disclose in filings with
    the SEC, or provide to other regulatory agencies;
  • The basis for non-disclosure of repurchase transactions in
    management’s discussion and analysis (MD&A) if this was not
    included in the MD&A.

The SEC said companies have ten business days
to respond to their request.


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