huffingtonpost.com | In a letter to Attorney General Eric Holder, Sen. Chris Dodd (D - Conn.), the chairman of the Senate Banking Committee, called for an investigation into the accounting activities used by Lehman Brothers during the financial crisis.

Last week, Lehman's bankruptcy examiner issued a scathing report that detailed the firm's use of "Repo 105" transactions to keep debts from being reflected on their balance sheet. The deals were essentially loans that were improperly classified as revenue on Lehman's books. The effect was to remove $50 billion from Lehman's balance sheet -- an act that then CEO Richard Fuld, was "at least grossly negligent" in allowing, the examiner said.

Based on Dodd's letter, it seems that NPR was correct in saying that it's a "safe bet" criminal trials are not far off. Here's Dodd's letter:

Dear Attorney General Holder:

I am deeply concerned about the facts that have come to light regarding the demise of Lehman Brothers and the accounting manipulation that contributed to it. I respectfully ask you to commission a task force to investigate the Lehman situation as well as other companies that may have engaged in similar accounting manipulation with a view to prosecution of employees or agents who contributed to any violations of the law.

According to the Report of the U.S. Trustee-appointed Examiner Anton R. Valukas, Lehman presented a misleading picture of its financial condition to the public by using extensive repurchase agreements known as Repo 105 transactions. The Examiner found that "Lehman did not disclose its use - or the significant magnitude of its use - of Repo 105 to the Government, to the rating agencies, to its investors, or to its own Board of Directors." The result was to conceal its holdings of bad assets and to temporarily remove approximately $50 billion of assets from its balance sheet at the end of the first and second quarters of 2008. The Examiner found that Lehman used Repo 105 transactions for no other articulated purpose than to shrink its balance sheet at the quarter-end, in a manner that deceived investors and creditors about its true financial state and misleading others.

We must work tirelessly to reduce the incidence of financial fraud in order to restore trust and confidence in the financial markets. A task force investigation and taking appropriate Federal actions in these matters will contribute to these goals.

Sincerely,



Christopher J. Dodd
Chairman