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This is pretty aggressive and pretty abusive. I don’t know how under GAAP this follows the rules whatsoever,” he said, referring to Generally Accepted Accounting Principles.“That reeks of an auditor who, rather than being really truly independent, is beholden to management,” he said, adding that the S.E.C. and the Justice Department should follow up on Mr. Valukas’s findings.

Executives at other Wall Street banks professed surprise at Lehman’s accounting maneuvers. Goldman Sachs, Barclays Capital and other banks said on Friday they did not use repos to hide liabilities on their balance sheets.

EDITOR’S NOTE: Surprised? Other than the people who thought they would not get caught, who is surprised by the fact that upon close scrutiny Lehman’s books were cooked and Ernst and Young “auditors” went along with it? Ask any “Joe” or “Jane” in the street if they are surprised.

So a few scapegoats are going to jail in the usual perp walk while most of the “masterminds” walk away with taxpayer money jingling in their pocket, with homeowners being bounced from their homes, with the economy in a death spin, and while their wallets bursting with cash, are replaced with more wallets in more places with more pockets.

Let’s put it very simply: If the experts are surprised they are not experts. Or, if they are experts, they are co-conspirators. To paraphrase Brad in the survey workshops they were either stupid or just plain lying.

But I didn’t post this because I am angry and outraged over the behavior of Wall Street, regulators, congress and the Obama administration. The reason I write this is to highlight the fact that persistence pays off. What was unthinkable, crazy, conspiratorial 3 years ago when i first started writing on this subject is now being accepted as axiomatically true.

If you persist in challenging the pretender lenders and demanding that the real creditor step forward, if you persist in getting a full accounting from the creditor (investor) down to the the debtor (borrower, homeowner), then you will magnify your chances of prevailing against a fraudulent foreclosure. Nearly all of the foreclosures during the past 3 years were fraudulent. Millions of people are thinking of their old homestead while they probably still own it, even though they left or were evicted.

Get your facts together, get that forensic analysis, get an expert to declare the truth, and get a lawyer who either understands securitized mortgage loans or is willing to learn. And don’t stop, don’t give and don’t leave until the last option of the last move has been played — because it is only THEN that the other side will cave in and offer you a reasonable settlement. And even then you still need to go to court with a quiet title action because the people offering you the deal are NOT your creditor and don’t know the name(s) of your creditor much less represent them.

Findings on Lehman Take Even Experts by Surprise

By MICHAEL J. de la MERCED

For the year that it took the court-appointed examiner to complete his report on the demise of Lehman Brothers, officials from Wall Street to Washington were anticipating it as the definitive account of the largest bankruptcy in American history.

And the report did just that when it was unveiled on Thursday, riveting readers with the exhaustive detail contained in its nine volumes and 2,200 pages. Yet almost immediately, it raised a host of new questions.

Now government regulators have what some lawyers call a road map for further inquiry into former Lehman executives like Richard S. Fuld Jr. and the auditing firm Ernst & Young.

Whether the Justice Department and the Securities and Exchange Commission will actually pursue their own legal actions is unclear. But legal experts said on Friday that the examiner, Anton R. Valukas, had provided plenty of material for civil regulatory action at the least with his findings of “materially misleading” accounting and “actionable balance sheet manipulation.”

“It’s certainly not helpful to any of them,” Michael J. Missal, a partner at the law firm K&L Gates and the examiner in the bankruptcy case of New Century Financial, said of some individuals accused of impropriety in the report. “It certainly assists private litigants and probably increases the pressure on the government to take some kind of action here.”

Representatives for the S.E.C. and the United States attorneys offices in Manhattan and Brooklyn declined to comment.

While Mr. Fuld and other former top Lehman officials are already defendants in a number of civil lawsuits, the new discoveries by Mr. Valukas have taken even veteran observers by surprise. Chief among these was the revelation of a particularly aggressive accounting practice, known internally as Repo 105, that Mr. Valukas said helped the investment bank mask the true depths of its financial woes.

Examiners in bankruptcy cases are appointed by the Justice Department to investigate accusations of wrongdoing or misconduct. Their job is to determine whether creditors can recover more money in these cases, and their findings often serve as guides for more lawsuits and even regulatory action.

What examiners are not asked to do is play judge and jury. Though the report contains strong language — Mr. Valukas deems Mr. Fuld “at least grossly negligent” in his role overseeing Lehman — it stops short of accusing anyone of criminal conduct or of violating securities law.

Patricia Hynes, a lawyer for Mr. Fuld, said on Thursday that her client “did not know what those transactions were — he didn’t structure or negotiate them, nor was he aware of their accounting treatment.” She did not return an e-mail seeking additional comment on Friday.

Mr. Valukas’s findings have stirred loud discussion among legal and accounting experts over the ways Lehman sought to improve its quarterly results months before it collapsed.

Over hundreds of pages, Mr. Valukas details the genesis of and the process behind Repo 105. Based on standard repurchase agreements — short-term loans commonly used by many firms for daily financing needs, in which borrowers temporarily exchange assets in return for cash up front — Lehman took a particularly aggressive accounting approach to these transactions.

Here, the investment bank used repos to temporarily park assets off its books to make its end-of-quarter debt levels look better than they did — while calling them sales instead of loans.

The accounting tactic, first used by Lehman in 2001, had one catch, according to Mr. Valukas: no American law firm would sign off on its use.

Enter Linklaters, a highly respected British law firm that gave Lehman the answer it wanted. So long as the repos were conducted in London through the bank’s European arm, and so long as the company took other cosmetic steps to make these transactions appear to be sales instead of financings, Linklaters determined that they would pass regulatory muster.

A spokeswoman for Linklaters said on Friday that the firm was not contacted by Mr. Valukas and that its legal opinions were not criticized in the examiner’s report as wrong or improper.

Lehman also had the backing of Ernst & Young, which certified the bank’s financial statements despite receiving warnings from a whistle-blower who said there were accounting improprieties. An Ernst & Young spokesman said on Thursday that the firm stood by its work for 2007, the last year it conducted an audit of Lehman’s financial results.

But Lynn E. Turner, a former chief accountant for the S.E.C., accused Ernst & Young of abdicating its responsibility to the audit committee of Lehman’s board by not presenting the concerns.

“This is pretty aggressive and pretty abusive. I don’t know how under GAAP this follows the rules whatsoever,” he said, referring to Generally Accepted Accounting Principles.

“That reeks of an auditor who, rather than being really truly independent, is beholden to management,” he said, adding that the S.E.C. and the Justice Department should follow up on Mr. Valukas’s findings.

Executives at other Wall Street banks professed surprise at Lehman’s accounting maneuvers. Goldman Sachs, Barclays Capital and other banks said on Friday they did not use repos to hide liabilities on their balance sheets.

Filed under: brad keiser, bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, Forensic Analysis Workshop, GTC | Honor, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, workshop | Tagged: Barclays, Ernst and Young, forensic analysis, forensic auditor training, forensic report, forensic review, gaap, Goldman Sachs, K&L Gates, Lehman, Linklaters, Lynn E. Turner, Michael Missal, New Century Financial Corp, Patricia Hynes, repo, Richard S. Fuld Jr, S.E.C., Valukas, workshop | 23 Comments »