Linklaters slammed over role in Lehman Brothers cover-up

March 12, 2010 Linklaters has been accused of assisting Lehman Brothers to manipulate its balance sheet to mask the perilous state of the bank’s financial affairs ahead of its collapse in 2008.

A new report into the Lehman Brothers collapse reveals that the bank used an accounting practice known as ‘Repo 105’ to make the business appear healthier. Lehman Brothers used the practice frequently in the bank’s final two years to alter the public perception of the bank’s financial status. In the lead up to a reporting period, Lehman Brothers would enter into an agreement to sell and repurchase financial assets. The billions of dollars from the sale pumped up the bank’s balance sheet and reduced borrowings in time for the bank’s reports. At the beginning of a new quarter, the bank would then borrow money to repurchase the assets.

Anton Valukas of Jenner & Block, who was appointed as examiner by the judge handling Lehman’s bankruptcy, compiled the report. The report also reveals that Lehman Brothers initially attempted to find legal clearance from an American law firm to permit the Repo 105 transactions, but was denied. The bank then sought advice from Linklaters in London, which said that the transactions were legal under British law.

The report also accuses British accountancy firm Ernst & Young of professional negligence for signing off the Repo 105 arrangements.

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