Remember that investigation into repurchase agreements the Securities and Exchange Commission launched earlier this year? The SEC wanted banks and other financial institutions to step forward and explain how they were using “repo 105” deals, one of several accounting contraptions that put Lehman Brothers into bankruptcy in 2008. We have some fresh news on that front.

Repurchase agreements, I’m sure you recall, are where a bank secures short-term financing by transferring assets to another lender at slightly higher prices—that is, Bank A transfers assets valued at $102 million to Bank B, in exchange for $100 million in cash. At that 2 percent difference, Bank A can only book the transaction as a secured lending. That’s not terribly helpful, however, since a secured lending means Bank A can’t use that cash to reduce leverage on the balance sheet. Lehman, therefore, pushed the envelope to 5 percent (hence the term “repo 105 deals”) and sometimes even 8 percent—and then declared that such transactions were a sale, and that the cash could be used to reduce leverage. The small detail that Lehman would need to repurchase the assets within a week or so? Feh.

Lehman maintained this facade for years, amassing all sorts of leverage behind the scenes until it piled up so high that the firm filed for bankruptcy and caused a financial crisis. News of Lehman’s repurchase accounting finally came out earlier this spring during its bankruptcy hearings. That, in turn, prompted the SEC to approach all the other Wall Street banks—which all used repo deals throughout the 2000s—to see whether anyone deserves a regulatory dope slap.

Now the always-astute researchers at Audit Analytics have published a short study reviewing SEC comment letters about repurchase agreements. They trolled through their database of every financial filing in the known universe (seriously, they’re that good), and found 115 comment letters about repo deals sent to 102 companies from 2004 to date.

Almost all the comment letters inquired about transactions that derecognized assets by accounting for them as a sale, or about transactions that didn’t specify the accounting method (sale versus secured lending) at all. Yes, most of the letters (76 percent) were only general inquiries, asking the registrant to explain how its accounting complied with Financial Accounting Standard No. 140, Accounting for Transfer of Financial Assets. But for the remaining 24 percent, where the registrant clearly did use sale accounting, “the questioning typically became more pointed,” as Audit Analytics diplomatically put it.

In those cases, the SEC wanted to know about compliance with three specific points of FAS 140:

• Were the assets in question fully isolated from the registrant and its creditors?
• Did the institution that received the assets have full rights to transfer the assets to yet another party if it chose?
• Did the registrant eliminate all effective control over the assets, once they were transferred to the receiver?

Of those three questions, Audit Analytics found that the SEC most often inquired about the last one. That makes sense; we’re talking about repurchase agreements, and that provision of FAS 140 (paragraph 9, sub-section C) essentially says that if Bank A retains the right or obligation to repurchase its assets from Bank B—well then, that’s not a sale, and your accounting shouldn’t say that it is.

You accounting officers out there who recorded repurchase agreements with sale accounting know who you are. I suspect that at some point, the SEC will figure out who you are, too. That’s not to say you committed improper accounting or will face SEC sanctions; there are some cogent arguments out there that Lehman’s actions, as suspicious as they were, did not violate U.S. Generally Accepted Accounting Principles of the time. As one wag told me: “Lehman was in compliance with GAAP. They were just in compliance with a part of GAAP that really sucked.”

Regardless, I’d suggest reading Audit Analytics report to get a sense of what has caught the SEC’s attention under FAS 140 in the past. We’ll be hearing more from the SEC about this in the future.