Lehman employed off-balance sheet devices, known within Lehman as Repo 105 and Repo 108 transactions, to temporarily remove securities inventory from its balance sheet, usually for a period of seven to ten days in late 2007 and 2008. Repo 105 transactions were nearly identical to standard repurchase and resale (repo) transactions that Lehman (and other investment banks) used to secure short-term financing, with a critical difference; Lehman accounted for Rep 105 transactions as sales as opposed to financing transactionsBy recharacterizing the Rep 105 transaction as a sale. Lehman removed the inventory from its balance sheet. Lehman regularly increased its use of Repo 105 transactions in the days prior to reporting periods to reduce its publicly reported net leverage and balance sheet. Lehmans periodic reports did not disclose the cash borrowing from the Repo 105 transactionLehman used the cash from the Repo 105 transaction to pay down other liabilities, thereby reducing both the total liabilities and the total assets reported on its balance sheet and lowering its leverage ratios.. A few days after the new quarter began, Lehman would borrow the necessary funds to repay the cash borrowing plus interest, repurchase the securities, and restore the assets to its balance sheet.

Is it ethical to keep the types of liabilities discussed in this article off the balance sheet, or is this a type of financial statement fraud?