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Case study · CASE:real-companies/lehman-repo-105

Lehman Brothers: a quarter-end balance-sheet disappearing act

Use SEC testimony summarizing the Lehman examiner's findings to reconstruct Repo 105 economics, reporting timing, leverage presentation, and evidence limits.

Updated Aug 7, 2026 Review due Nov 7, 2026
On this page
  1. Your role and decision
  2. Evidence packet
  3. Required work
  4. Constraints
  5. Evaluation
Decision brief

Your assignment

Role: Risk-committee analyst reviewing a proposed quarter-end secured-financing transaction and its effect on reported leverage

Deliverable: A transaction timeline and risk-committee memo reconciling legal form, accounting presentation, cash and security flows, leverage effects, reversal, disclosure, and missing evidence.

Evidence basis: public records

Visible standard

Evaluation criteria

  • transaction timeline (30%): Traces securities, cash, obligation, reporting-date presentation, and post-period reversal without making assets or risk vanish economically.
  • accounting and ratio bridge (25%): Shows how sale-versus-financing treatment changes reported assets, liabilities, and leverage while distinguishing presentation from economic exposure.
  • evidence and claim boundaries (20%): Treats testimony as a summary of examiner findings, identifies missing primary records, and avoids unsupported legal conclusions.
  • governance response (25%): Proposes controls over period-end transactions, legal opinions, recurring reversals, disclosure, risk reporting, and audit-committee escalation.

Your role and decision

Near quarter-end, a financial institution proposes transferring securities for cash, recording a sale, using the cash to reduce liabilities, and reversing the sequence shortly after the reporting date. Management says the legal form supports sale accounting. The risk committee asks what the balance sheet and leverage measure would actually communicate.

Evidence packet

Use SEC testimony that discusses the bankruptcy examiner's Repo 105 findings. It is an official secondary summary, not the examiner's complete report, transaction documents, legal opinions, or current technical accounting rule.

Required work

  1. Draw the security, cash, liability, and repurchase sequence before, at, and after quarter-end. Identify which economic exposures continue.
  2. Use a simple hypothetical balance sheet to compare financing and sale presentation. Reconcile assets, liabilities, cash use, and a clearly defined leverage ratio at each stage.
  3. Evaluate legal form, accounting criteria, business purpose, frequency, materiality, disclosure, and recurring post-period reversals as separate evidence questions.
  4. Recommend controls over unusual period-end transactions, legal-opinion independence, treasury-accounting reconciliation, risk reporting, and audit- committee escalation.

Constraints

Do not claim that every repurchase agreement is improper or that temporary balance-sheet reduction eliminates risk. Keep hypothetical figures distinct from Lehman data and identify the primary documents needed for a final view.

Evaluation

The strongest memo makes the reversal visible and explains why legal, accounting, liquidity, leverage, and disclosure analyses are connected but not identical.