Ted Kaufman - United States Senator for Delaware

SEC Asked To Tighten Reporting Requirements

Source: National Journal

By Bill Swindell

August 13, 2010

Six senators have written to SEC Chairwoman Mary Schapiro asking that her agency issue rules to requiring public companies to disclose all of their off-balance sheet investments.

Sen. Robert Menendez, D-N.J., and five others argued the SEC should use its authority under the 2002 Sarbanes-Oxley Act to mandate that companies "completely and accurately" disclose their accounting practices to prevent the kind of abuses that led to the collapse of Lehman Brothers.

"When companies use accounting gimmicks to mislead investors and creditors, capital markets malfunction," said the letter, dated Aug. 6. "As we attempt to recover from the latest meltdown, we hope that, in addition to aggressively investigating and prosecuting past misconduct, you will put in place these new rules that will make it harder for companies to mislead investors and creditors in the future."

Even after the implementation of Sarbanes-Oxley, which was designed to correct accounting abuses that led to the collapse of Enron Corp. and WorldCom, many other practices of concealing debt and shaky investments played a part in the 2008 financial crisis, warned the senators.

For example, Lehman used off-balance gimmick "Repo 105" transactions to hide toxic assets from its balance sheets, allowing it to mask $50 billion just before the second quarter of 2008.

The senators urged the SEC to require the disclosure of period end and daily average leverage ratios in quarterly and annual reports.

"This would provide useful information to investors and creditors to assist their decision-making processes," they wrote. "Rather than relying on carefully-staged quarterly and annual snapshots, investors and creditors should have access to a complete real-life picture of a company's financial situation."

The other signers include Sens. Ted KAUFMAN, D-Del., Carl Levin, D-Mich., Sherrod Brown, D-Ohio, and California Democrats Dianne Feinstein and Barbara Boxer.

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