Lehman exploited Linklaters opinion to tidy up balance sheet

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  • Why is a repo transaction that classifies a borrowing as a sale legal under UK law?

    Why was an opinion letter that related solely to English law used to disguise transactions involving US securities?

    Who should have questioned these practices?

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  • This is ample proof that we need an International body to regulate international transactions, or indeed any transaction with the potentional for cross-border consequences.

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  • The law is the law. You cannot reasonably expect to do business across international borders and then cry like an infant when a perfectly legal interpretation of the law goes against you.

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  • It seems clear that the common law defines a 'true sale' as one where the asset is put beyond the reach of the Seller. The position is set out in the Widows and Orphans Case in Ontario Canada, in reliance upon, inter alia, Welsh Development Agency v. Export Finance Co.
    There can be no doubt that the 2 part recharacterization test set down by the court could not yield a 'true sale' opinion where the Seller has a contractual obligation, as opposed to an option, to buy back the assets. In this case the common law informs us that the Lehman transaction was in fact a short-term loan with a 5% coupon, which if payable in the time frames set out in Mr. Valukas' report to the South New York Bankruptcy Court, would be a criminal rate of interest.
    It seems clear that Linklaters failed in discharging its duties as an expert when they gave an opinion that could not reasonably be argued to be a 'true sale' by singular reference to FASB 140. The accounting position is not a statement of the law. It's an accounting circular for use by Audit firms in the United States.
    It would be constructive to post a copy of Linklaters Opinion Letter so that further comment can be garnered. I note that it should not be subject to privilege because it was not, I assume, issued for the dominant purpose of litigation. At least, let's hope not.

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  • The Linklaters opinion is available on-line as it forms part of the bankruptcy report. It would have been privileged because it would have been covered by legal advice privilege had it not been used. However it was intended to be publicly disclosed-that was its whole point. I am no expert but it is clear that Linklaters have interpreted the law correctly. They are not criticised in the report. I do not know enough about this to assess whether they have interpreted it correctly but aggressivley ie whether this was only technically legal.
    As for the law is the law poster at 5.58-are you a lawyer?? The law is whatever a "good" lawyer can argue it is with any credibility, regardless of whether the lawyer and the client know that the law was in fact meant to prohibit the conduct they are engaging in. Engaging in technically legal behaviour may be clever but it isn't something to be proud of. Law firms who lose sight of that- and most do-suffer damage to their reputations when it comes to light.

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