$$$ Chris Dodd Asks Department Of Justice To Probe Lehman Repo 105 And “Other” Accounting [ZH]

$$$ AIG CDOs Sold to Federal Reserve Placed on Review for Downgrade by Moody’s [Bloomberg]

$$$ Goldman Sachs Sued for Not Divulging Madoff Ban to Investor [Law.com]

$$$ Fallen trader has run out of options [Sydney Morning Herald]

Article courtesy of Dealbreaker

It’s not just chinos and pieces on the side. Another thing that made the Gorilla table flippingly mad was uppity pipsqueaks who dared to mention concerns about the firm committing fraud. Via the WSJ, here’s the letter that got whistle-blower Matthew Lee fired. He won’t make that mistake again!

MATTHEW LEE

May 18, 2008

PERSONAL AND CONFIDENTIAL

BY HAND

Mr. Martin Kelly, Controller

Mr. Gerard Reilly, Head of Capital Markets Product Control

Ms. Erin Callan, Chief Financial Officer

Mr. Christopher O’Meara, Chief Risk Officer

Lehman Brothers Holdings, Inc. and subsidiaries

745 7th Avenue

New York, N.Y. 10019

Gentlemen and Madam:

I have been employed by Lehman Brothers Holdings, Inc. and subsidiaries (the “Firm”) since May 1994, currently in the position of Senior Vice President in charge of the Firm’s consolidated and unconsolidated balance sheets of over one thousand legal entities worldwide. During my tenure with the Firm I have been a loyal and dedicated employee and always have acted in the Firm’s best interests.

I have become aware of certain conduct and practices, however, that I feel compelled to bring to your attention, as required by the Firm’s Code of Ethics, as Amended February 17, 2004 (the “Code”) and which requires me, as a Firm employee, to bring to the attention of management conduct and actions on the part of the Firm that I consider to possibly constitute unethical or unlawful conduct. I therefore bring the following to your attention, as required by the Code, “to help maintain a culture of honesty and accountability”. (Code, first paragraph).

The second to last section of the Code is captioned “FULL, FAIR, ACCURATE, TIMELY AND UNDERSTANDABLE DISCLOSURE”. That section provides, in relevant part, as follows:

“It is crucial that all books of account, financial statements and records of the Firm reflect the underlying transactions and any disposition of assets in a full, fair, accurate and timely manner. All employees…must endeavor to ensure that information in documents that Lehman Brothers files with or submits to the SEC, or otherwise disclosed to the public, is presented in a full, fair, accurate, timely and understandable manner. Additionally, each individual involved in the preparation of the Firm’s financial statements must prepare those statements in accordance with Generally Accepted Accounting Principles, consistently applied, and any other applicable accounting standards and rules so that the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of the Firm.

Furthermore, it is critically important that financial statements and related disclosures be free of material errors. Employees and directors are prohibited from knowingly making or causing others to make a materially misleading, incomplete or false statement to an accountant or an attorney in connection with an audit or any filing with any governmental or regulatory entity. In that connection, no individual, or any person acting under his or her direction, shall directly or indirectly take any action to coerce, manipulate, mislead or fraudulently influence any of the Firm’s internal auditors or independent auditors if he or she knows (or should know) that his or her actions, if successful, could result in rendering the Firm’s financial statements materially misleading”

In the course of performing my duties for the Firm, I have reason to believe that certain conduct on the part of senior management of the Firm may be in violation of the Code. The following is a summary of the conduct I believe may violate the Code and which I feel compelled, by the terms of the Code, to bring to your attention.

1. Senior Firm management manages its balance sheet assets on a daily basis. On the last day of each month, the books and records of the Firm contain approximately five (5) billion dollars of net assets in excess of what is managed on the last day of the month. I believe this pattern indicates that the Firm’s senior management is not in sufficient control of its assets to be able to establish that its financial statements are presented to the public and governmental agencies in a “full, fair accurate and timely manner”. In my opinion, respectfully submitted, I believe the result is that at the end of each month, there could be approximately five (5) billion dollars of assets subject to a potential write-off. I believe it will take a significant investment of personnel and better control systems to adequately identify and quantify these discrepancies but, at the minimum, I believe the manner in which the Firm is reporting these assets is potentially misleading to the public and various governmental agencies. If so, I believe the Firm may be in violation of the Code.

2. The Firm has an established practice of substantiating each balance sheet account for each of its worldwide legal entities on a quarterly basis. While substantiation is somewhat subjective, it appears to me that the Code as well as Generally Accepted Accounting Principles require the Firm to support the net dollar amount in an account balance in a meaningful way supporting the Firm’s stated policy of “full, fair, accurate and timely manner” valuation. The Firm has tens of billions of dollars of unsubstantiated balances, which may or may not be “bad” or non-performing assets or real liabilities. In any event, the Firm’s senior management may not be in a position to know whether all of these accounts are, in fact, described in a “full, fair, accurate and timely” manner, as required by the Code. I believe the Firm needs to make an additional investment in personnel and systems to adequately address this fundamental flaw.

3. The Firm has tens of billions of dollar of inventory that it probably cannot buy or sell in any recognized market, at the currently recorded current market values, particularly when dealing in assets of this nature in the volume and size as the positions the Firm holds. I do not believe the manner in which the Firm values that inventory is fully realistic or reasonable, and ignores the concentration in these assets and their volume size given the current state of the market’s overall liquidity.

4. I do not believe the Firm has invested sufficiently in the required and reasonably necessary financial systems and personnel to cope with this increased balance sheet, specifically in light of the increased number of accounts, dollar equivalent balances and global entities, which have been created by or absorbed within the Firm as a result of the Firm’s rapid growth since the Firm became a publicly traded company in 1994.

5. Based upon my experience and the years I have worked for the Firm, I do not believe there is sufficient knowledgeable management in place in the Mumbai, India Finance functions and department. There is a very real possibility of a potential misstatement of material facts being efficiently distributed by that office.

6. Finally, based upon my personal observations over the past years, certain senior level internal audit personnel do not have the professional expertise to properly exercise the audit functions they are entrusted to manage, all of which have become increasingly complex as the Firm has undergone rapid growth in the international marketplace.

I provide these observations to you with the knowledge that all of us at the Firm are entrusted to observe and respect the Code. I would be happy to discuss any details regarding the foregoing with senior management but I felt compelled, both morally and legally, to bring these issues to your attention. These are, indeed, turbulent times in the economic world and demand, more than ever, our adherence and respect of the Code so that the Firm may continue to enjoy the investing public’s trust and confidence in us.

Very truly yours,

MATTHEW LEE

cc: Erwin J. Shustak, Esq.

Article courtesy of Dealbreaker

SunPower (SPWRA) shares are down sharply in late trading on a disappointing forecast for the first quarter and for all of 2010.

For Q4, the solar products company posted revenue of $548 million, ahead of the Street at $490.9 million. The company posted non-GAAP EPS of 47 cents, or 50 cents excluding charge of 3 cents a share related to its recent accounting investigation, a penny ahead of the Street at 49 cents.

But the guidance was alarmingly weak: SunPower said it sees non-GAAP Q1 revenue of $330 million to $350 million, with profits of 5 cents a share, well below the Street at $427.3 million and 34 cents. For the full year, the company expects revenue of $2 billion to $2.05 billion, with profits of $1.25 to $1.65 a share; the Street has been forecasting $2.06 billion and $1.78 a share.

The company also said it has completed its internal accounting investigation of issues at its Philippine operations. SPWRA said the Audit Committee of the company’s board “concluded that certain unsubstantiated accounting entries were made at the direction of Philippines-based finance personnel in order to report results for manufacturing operations that would be consistent with internal expense projections.” The company said the issue was confined to the accounting function in the Philippines, and that executive management neither directed nor encouraged, nor was aware of, the inaccurate entries.

The company said that the overall impact of the issue was to understate costs of goods sold.

SPWRA is restating its results for 2008 and all interim periods for that year, as well as for the first three quarters of 2009. The company also said that the investigation also discovered “various accounting errors” in addition to those triggered the investigation. The company said that the Audit Committee recommended “various remedial measures to address certain personnel, organizational and internal control matters.”

The company said the cumulative effect of the restatement is increasing pre-tax expense by $33.2 million, and reducing net income by $16.9 million over the entire period, excluding $3.6 million in investigation expenses incurred in Q4.

Finally, the company said that it has concluded that the control deficiencies uncovered in the Philippines constituted “material weaknesses” in internal controls.

SPWRA in late trading is down $1.74, or 7.9%, to $20.30.

Update: In a slide prepared for the company’s post earnings conference call, the company said it expects a 20% decline in pricing  by the end of 2010.

Article courtesy of BARRONS.com: Tech Trader Daily

TheStreet.com (TSCM) this afternoon filed for an extension for the filing date of its 2009 10-K. The company said it expects to make the filing before the 15-day extension period lapses.

According to the filing, the delay reflects the need for the company and its accounting firm “to focus on matters related to the company’s previously announced review of the accounting in its former Promotions.com subsidiary,” which was sold in December. In connection with that situation, the company previously restated results for some periods. Also contributing to the delay, the company said, were “matters related to an investigation commenced by the Securities and Exchange Commission in March 2010.”

This would appear to be the first disclosure of the SEC probe.

Gregory Barton, general counsel at TheStreet.com, said in an interview this afternoon that it would not be unusual for the SEC to launch an investigation following a financial restatement, and that the company expects that is the case here.

Barton also said that the financial data reports in the 10-K should be consistent with the Q4 results announced earlier this week.

In today’s regular session, TSCM fell 8 cents, to $3.42.

Article courtesy of BARRONS.com: Tech Trader Daily

AIG Is Said to Query Bonus Holdouts in Push for $45 Million of Concessions (Bloomberg)
The insurer mailed questionnaires this month to ex-workers at the Financial Products unit asking whether they’d earned income after leaving AIG, said the people, who declined to be identified because the negotiations are private. Under the program, compensation earned by former AIG staff in 2009 from another employer would lower payouts to be delivered next week from the New York-based company, the people said.

Big Majority Of Americans Wants Wall Street Regulation (Reuters)
Supposedly: “82 percent of Americans want the government to clamp down more strongly on Wall Street excesses, with a particular emphasis on bonus schemes that have rewarded employees at loss-making companies such as AIG.”

The U.K. Origins of Lehman’s Accounting Trick (Dealbook)
Repo 105.

UBS Lobbies for Swiss-U.S. Deal (WSJ)
The IRS has uncovered as many as 20 other Swiss private banks as part of a tax amnesty aimed at declaring funds to the authority, according to a UBS document seen by Dow Jones Newswires Friday. In the document, UBS argues that a parliamentary no-vote could also harm the other Swiss banks who offered services to wealthy Americans. “Switzerland’s refusal to honor its international obligations could send an escalating signal,” UBS writes in the seven-page document, which was sent to Swiss parliamentarians this week.

Obama to nominate Yellen as Fed vice chairman (MarketWatch)
Yellen “is one of the more dovish policy makers among the Fed’s 12 regional bank presidents and has been a strong supported of the policies of Fed Chairman Ben Bernanke.”

Dennis Kneale: Obama is Ahab, Strapped to Moby Dick (CNBC)
Oh, okay.

SEC Asks Congress to Regulate Credit Default Swaps (Reuters)
“If we continue to allow these risky financial products to operate in the dark we should not be surprised at the damage we find when the lights come on,” Securities and Exchange Commission Chairman Mary Schapiro said in a statement, without commenting on Greece’s situation.

Article courtesy of Dealbreaker