It’s pretty obvious why the letter isn’t being sent to the media outlets in question: it’s hilariously disingenuous, and anybody reading it side-by-side with, say, this piece at ZeroHedge will find it simply laughable. For instance:
Because effective control of the securities was surrendered to the counterparty in the Repo 105 arrangements, the accounting literature (SFAS 140) required Lehman to account for Repo 105 transactions as sales rather than financings.
For one thing, it’s jolly good that E&Y is so clear about this now, after the head of its Lehman team, Hillary Hansen, told the examiner that she had no idea what Repo 105 even was as late as June 2008. And more to the point, the examiner never says that the accounting treatment of the Repo 105 transactions was wrong; he says that the disclosure surrounding those arrangements was clearly inadequate. To which E&Y responds that “the 2007 audited financial statements were presented in accordance with US GAAP, and clearly presented Lehman as a leveraged entity operating in a risky and volatile industry”.
Well, yes. Which makes it all the more important that off-balance-sheet sources of leverage and risk should be clearly disclosed, no?
The letter continues in this vein for two pages, denying allegations which haven’t been made while stepping gently around the ones which have. Even if you haven’t seen things like the ZH report, the tone of the letter is decidedly weird. If you have seen things like the ZH report, the letter will only serve to make your opinion of E&Y even worse. If I was on the audit committee which received this letter, I would certainly be shopping my account right now. And if this is the best defense that E&Y can muster, they really are in for a world of Lehman-related pain.