What Loophole?

"As it neared collapse in 2008, Lehman used an accounting gimmick to move $50 billion in assets off its books. The firm did this thanks to a more-than-questionable interpretation of accounting rules governing the treatment of repo transactions. ... Yet this apparently didn't raise red flags with the firm's auditor, Ernst & Young LLP, or the [SEC]. The lesson: Regulators should move toward a system where companies are judged by the substance of what they are trying to achieve, rather than meeting the definition of accounting rules", my emphasis, David Reilly (DR) at the WSJ, 13 March 2010, link: http://online.wsj.com/article/SB10001424052748704131404575117733017612228.html.

"The UK's Financial Reporting Council, the regulator for accounting and auditing, said Monday it had started looking at how Lehman Brothers Holdings Inc. repo transactions were accounted for and audited in the UK. It said it was seeking extra information from Lehman's former auditor, [E&Y]", Greg Manuel at the WSJ, 16 March 2010, link: http://online.wsj.com/article/SB10001424052748703909804575123913796112340.html.

DR, here's news for you: that's what we supposedly have now! The lawyer-infested SEC can't function at a level beyond that of "summary judgement". I don't know how many times I discussed "substance vs. form" with SEC personnel. They just don't get. Or do they? The IRS has a "step transaction doctrine" and realizes the substance and form of transactions may differ. The SEC apparently doesn't.

It's good to see someone look at this aside from the SEC.