Linklaters has been embroiled in a fresh controversy over the collapse of Lehman Brothers after a new report revealed that the bank relied on an opinion letter from the firm for a transaction that flattered its financial strength.

A report published on Thursday (11 March) by US law firm Jenner & Block on the Chapter 11 proceedings of Lehman Brothers accuses the bank of using aggressive accounting practices to mask the true state of its finances ahead of its collapse in 2008.

The 2,200-page report found Lehman used a Repo 105 transaction, whereby the bank sold and then repurchased financial assets, as part of "bank sheet manipulation" to artificially lower its leverage.

The report by Jenner chairman Anton Valukas, the court-appointed examiner to Lehman's US bankruptcy proceedings, states that the bank was unable to get an opinion letter from a US law firm to classify the transaction as a "true sale", which was required to enjoy "balance sheet and leverage relief" from the deal.

The report states that US law does not allow such transactions to be classified as sales, rather than short-term funding arrangements.

However, Linklaters then provided a true sale opinion letter for a UK law transactions through Lehman Brothers International (Europe) (LBIE), the bank's European business, which is allowed in the UK.

Varlukas states in the report: "Unable to find a US law firm that would provide it with an opinion letter permitting the true sale accounting treatment under US law, Lehman conducted its Repo 105 program under the aegis of an opinion letter Linklaters wrote for LBIE, Lehman's European broker‐dealer in London, under English law."

Varlukas continues "Although the Linklaters letter was written for the exclusive benefit of LBIE, a significant volume of Lehman's Repo 105 transactions was executed for the benefit and using the securities of one or more US-based Lehman entities".

There is no suggestion that Linklaters has acted unethically or in conflict with UK law.

In a statement, Linklaters said: "The US examiner's report into the failure of Lehman includes references to English law opinions which Linklaters gave in relation to a number of Lehman transactions. The examiner – who did not contact the firm during his investigations – does not criticise those opinions or say or suggest that they were wrong or improper. We have reviewed the opinions and are not aware of any facts or circumstances which would justify any criticism."

However, the tactics of Lehman's management in using the transactions to flatter its financial position at a time when the bank was under acute pressure in the run-up to its collapse are strongly criticised in the report. The report also criticises Lehman's auditor, Ernst & Young, for failing to challenge the use of the Repo transactions.

Click here to access report in full.