According to the paper, SEC officials have grown increasingly doubtful that they can prove that Lehman broke U.S. laws by moving via an accounting maneuver known as Repo 105, nearly $50 billion in assets off its balance sheet to make it appear that the investment firm, which became the symbol of the 2008 financial crisis, had reduced its debt levels.
Repo 105 is a basically an accounting trick that allows a company to classify a short-term loan as a sale. The cash obtained through this “sale” is then used to bring down the co.’s debt by temporarily paying down liabilities. This maneuvering is usually done just before a financial report is due. Then, in a pre-arranged deal, the co. borrows cash and repurchases its original asset, swinging the debt higher after the financial statements are released. Pretty cool huh?!!! Imagine how nice it would be to do your 2011 taxes and Repo 105 last year’s profits.!!! Repo 105 was used by Lehman Brothers three times according to a March 2010 report by court-appointed examiner Anton R. Valukas, who said that they enabled Lehman to “paint a misleading picture of its financial condition.”
Quoting people familiar with the situation, the Journal said SEC officials are also worried they might not win any lawsuit against former Lehman CEO Dick Fuld Jr., accusing him of improperly marking down the value of a large real estate portfolio acquired with the takeover of apartment developer Archstone-Smith Trust, which Lehman purchased in 2007, or to disclose losses to investors related to that deal.
If the SEC decides not to file charges against Lehman, the securities firm could escape criminal prosecution because the Justice Department generally follows the SEC’s lead in complicated financial cases, the paper said.