Third Amended Complaint - Lehman Brothers Securities Litigation

105 transactions, “[c]onsequently, Lehman’s statement that the net leverage ratio was a ‘moremeaningful’ measurement of leverage was rendered misleading because that ratio – as reported byLehman – was not an accurate indicator of Lehman’s actual leverage, and in fact, understatedLehman’s leverage significantly.”34. In addition, Lehman’s public statements regarding its liquidity (the immediate abilityto access funds to pay down short-term obligations) was rendered materially misleading because itsfinancial statements and related footnote disclosures failed to disclose Lehman’s immediateobligation to repay tens of billions of dollars in Repo 105 transactions just days after the end of eachfiscal quarter. Thus, Lehman’s reported that short-term or current liabilities were similarlyunderstated by a material amount. As a result, Lehman did not have nearly as much in availableliquidity or in its liquidity pool as it represented.35. Lehman also issued materially false and misleading explanations in theManagement’s Discussion and Analysis (“MD&A”) section of its periodic reports relating to therationale behind the reported decreases to its net leverage ratio (either quarter-on-quarter orcomparing to the prior year’s same quarter to the reported quarter). Regardless of theappropriateness of Lehman’s accounting for its Repo 105 transactions under GAAP, theserepresentations were materially false and misleading because Lehman was contractually obligatedto repurchase the Repo 105 assets.36. Significantly, a Repo 105 transaction was a more expensive form of short-termfinancing than an Ordinary Repo. Lehman had the ability to conduct an Ordinary Repo transactionusing the same securities and with substantially the same counterparties, at a lower cost, but insteadengaged in Repo 105 transactions that had the effect of temporarily “removing” tens of billions ofdollars of assets off Lehman’s balance sheet at the end of each quarter.37. At bottom, Lehman’s Repo 105 transactions lacked economic substance, andLehman’s reported de-leveraging failed to reflect its true financial condition. The quarterly cycle oftemporarily “removing” as much as $50 billion of assets off its balance sheet (as reflected in Table 1-10-