The SEC has written a letter (full letter at Zero Hedge link) demanding to find out if anybody else used repo 105s as a shell game to hid losses.
please tell us whether you have offset securities owned (long positions) with securities sold, but not yet purchased (short positions), along with any basis for your presentation policy and the related gross amounts that are offset. Finally, if you accounted for repurchase agreements, securities lending transactions, or other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets as sales and did not provide disclosure of those transactions in your
Management's Discussion and Analysis, please advise us of the basis for your conclusion that disclosure was not necessary and describe the process you undertook to reach that conclusion.
We refer you to paragraphs (a)(l) and (a)(4) of Item 303 of Regulation S-K.
As noted above, we seek to better understand the basis for your decisions and your disclosure. Please provide us with a written response to these questions within ten business days from the date of this letter or tell us when you will respond.
Note, this letter simply asks the CFOs of firms to disclose now. My hope is a follow up with real random audits.
“There are no secrets among Wall Street firms,” said Robert Willens, a former Lehman executive who teaches at Columbia Business School in New York. “If one firm was using the technique, it’s clear that other firms were aware of it and would have used it if they needed to.”
They are "Repo 105s" not "501". Just sayin' for accuracy and posterity.
We all need editors on here and I guess two many numbers, so I transposed them. Must have had jeans on my brain. ;)
But yes, I just freak out when I make mistakes like that, esp. in the title.
SEC needs to get their focus straight
What more can one say about the SEC, which has been too busy with tackling matters after the fact. Even this approach appears to be misplaced, as it will look to prosecute matters which until now may not have been illegal and for which many of these major financial institutions have taken internal actions to address so that they don't have a situation similar to that of Lehman Brothers. This would appear to be another instance where the SEC will mismanage their limited resources, being late to the party and prosecute something that doesn't require prosecution, simply because for public appearances it looks like they are doing their job. The SEC needs to focus its energies on real, substantive investigations that will protect public investors.
good insight Neufeld
That's an interesting slant on this, that they are announcing other areas so they do not have to deal with 105 repos or Lehman.
I haven't looked into the SEC staffing, I know they are understaffed but what's the salary in comparison to private?