Is perception reality? A balance sheet or a SEC filing snapshot says it is. data shows that the Securities and Exchange Commission had some of the keys it needed to prevent the collapse of Lehman Brothers. Since 2004, the SEC has questioned 115 repurchase agreement ("repo") transactions by 102 companies, an analysis of 115,000 SEC filings shows. That's a 1% incident rate, which is high.

Bank of America [ BAC ]and Citigroup [ C ] recently admitted to the SEC they booked repos as sales rather than debt on their balance sheets.

Window dressing mutual fund portfolios with top-performing stocks on the last business day of every quarter for the benefit of shiny brochures-or pumping up performance in the final days of a quarter with IPOs or other highflyers-is actually prevalent, as well. The SEC knew this in the late 1990s. Under the leadership of Chairmen Harvey Pitt and William H. Donaldson, the Commission frequently threatened to do something about it.

That was discovered by by analyzing SEC filings, holdings and performance data on the largest and smallest funds on critical dates, with the help of Fund Democracy and Lipper. The numbers showed, without question, that in the late 1990s when the market was booming and performance was a horserace, it was common practice among the more aggressive fund shops to boost the numbers.

But then the recession of 2001 happened, followed by the 2003 market timing and late trading scandal. After that, the SEC flubbed the ball.

Well, now that the spreads between yields on all types of asset classes are so thin-with the performance between the best-performing and worst-performing asset classes walking but a thin line-the temptation to juice the numbers, even by just a little bit, arises yet again.

To see how narrow spreads have become, just take a look at the Lipper indices performance data in our "Scorecard," page 11.

The SEC should take a close look, too. Fund managers could be equally motivated to pump up the volume, even a few basis points.Like the Johnny Cash song, "I Walk The Line," the SEC should keep a close watch, its eyes wide open all the time.

Lee Barney is Editor of Money Management Executive.

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