As a background principle, remember that every company takes measures to make its books look good. Accounting isn't a simple mechanical process, and there is quite a bit of leeway in how to classify various things and treat various assets.
Re: Repo 105 transactions. From Cuomo's lawsuit against E&Y: "E&Y not only approved but consistently supported Lehman's Repo 105 policy, and advised Lehman that it could take advantage of a technical accounting rule, known as FAS 140, to treat these Repo 105
transactions, which in reality were short-term financings, as 'sales,' enabling Lehman to remove the securities from inventory on its financial statements until they were repurchased." Here's a description of the Repo 105 transaction: http://www.npr.org/blogs/money/2010/03/repo_105_lehmans_acco.... Essentially, a bond is sold for cash with a short-term agreement to repurchase it. Lehman's accountant signed off on its treating these transactions as sales instead of loans, pursuant to FAS 140 (an accounting standard). This is criminally fraudulent activity?
Re: obfuscations to hide value of stock options. How is this fraudulent? Fraud doesn't just mean lying or misleading. It means basing a transaction on a lie or a misstatement.
Re: hiding bonuses. Again, how is this fraudulent?
Re: the revolving door article, see: http://www.slate.com/blogs/moneybox/2013/07/23/robert_khuzam... ("If you manage to unplug from the revolving door narrative for a second, you can see why this makes sense—if you spend your time as a government lawyer being extremely lackadaisical in your prosecutorial efforts that's going to make you look like a bad lawyer who people don't want to hire. If you want to cash in some day, you want to have the reputation of being someone who's really smart and tough and effective and who understands how to make cases.")
Note that article is by Matthew Yglesias, who is hardly some industry shill.
# On Repo 105: Lehman's accountant - EY - signing off does not imply anything was kosher. Accounting firms rarely ever blow the whistle against their large clients, especially one that earned it $150 million in fees between 2001 and 2008.AFAIK, the case against EY for fraud still isn't dead. [Source: http://www.forbes.com/sites/francinemckenna/2012/12/13/lehma...]
# And while you are correct that wilfully understating the value of executive stock options by $250 million may not be fraud, it is a lie told to shareholders and regulators. And we can't blame it on "global" or "structural" issues.
# Hiding bonuses is fraudulent when it is done in the context of an acquisition (Bank of America authorized those bonuses to be paid to Merrill Lynch execs, when the financial world was collapsing all around).
# Khuzami wasn't the first or only person who walked through SEC's revolving door, nor will he be the last. Here's a great, comprehensive and data-driven analysis of SEC's Revolving Door by the Project on Government Oversight: http://www.pogo.org/our-work/reports/sec-revolving-door.html
Again, I'm not alleging each of these (or the numerous others just a simple web search will throw up) is fraud, but refuting the parent's suggestion that the financial crisis was "a consequence of the structure of a system"; that there was no individual culpability/actions; and that "by our standards of justice there is nothing to prosecute".
That article is completely missing the "revolving" part of the analogy. Khuzami was previously at a leading position for Deutsche Bank, only then in 2009 did he join the SEC. He then left again in 2013 for Kirkland & Ellis.
You can't just group him together with the lower layers that start in government and want to cash out in private later. These usually don't come back.
As a background principle, remember that every company takes measures to make its books look good. Accounting isn't a simple mechanical process, and there is quite a bit of leeway in how to classify various things and treat various assets.
Re: Repo 105 transactions. From Cuomo's lawsuit against E&Y: "E&Y not only approved but consistently supported Lehman's Repo 105 policy, and advised Lehman that it could take advantage of a technical accounting rule, known as FAS 140, to treat these Repo 105 transactions, which in reality were short-term financings, as 'sales,' enabling Lehman to remove the securities from inventory on its financial statements until they were repurchased." Here's a description of the Repo 105 transaction: http://www.npr.org/blogs/money/2010/03/repo_105_lehmans_acco.... Essentially, a bond is sold for cash with a short-term agreement to repurchase it. Lehman's accountant signed off on its treating these transactions as sales instead of loans, pursuant to FAS 140 (an accounting standard). This is criminally fraudulent activity?
Re: obfuscations to hide value of stock options. How is this fraudulent? Fraud doesn't just mean lying or misleading. It means basing a transaction on a lie or a misstatement.
Re: hiding bonuses. Again, how is this fraudulent?
Re: the revolving door article, see: http://www.slate.com/blogs/moneybox/2013/07/23/robert_khuzam... ("If you manage to unplug from the revolving door narrative for a second, you can see why this makes sense—if you spend your time as a government lawyer being extremely lackadaisical in your prosecutorial efforts that's going to make you look like a bad lawyer who people don't want to hire. If you want to cash in some day, you want to have the reputation of being someone who's really smart and tough and effective and who understands how to make cases.")
Note that article is by Matthew Yglesias, who is hardly some industry shill.