Ernst And Young Hit With US Lawsuit Over Lehman Collapse

Thu, 23 Dec 2010

Accountancy giant Ernst and Young is being sued by New York's State Attorney General over its role in the collapse of US investment bank Lehman Brothers in 2008.

Andrew Cuomo has filed a lawsuit against the Big Four firm, which he claims was complicit in a "massive accounting fraud " perpetrated by Lehman.

The case centres on Lehman's use of a controversial accountancy practice called Repo 105. Ernst and Young is accused of using the practice without telling investors or regulators to temporarily remove up to $50bn (£32.2bn) of risky assets and liabilities from its balance sheet to exaggerate its financial strength.

Mr Cuomo states that as Lehman's auditors, Ernst and Young should not have approved the accounts, knowing that the practice had been used so widely.

"At a time when it was critical for investors to make informed decisions as to whether to keep or to buy Lehman, Ernst and Young assisted Lehman in defrauding the public," he said.

The lawsuit may seek fines and damages from the accountancy firm if it is proved that the company failed to spot evidence that Lehmans’ accounts mislead investors.

Ernst and Young said that it would "vigorously defend" itself as there was "no factual or legal basis for a claim to be brought against an auditor in this context".

It added: "Lehman's audited financial statements clearly portrayed Lehman as a highly leveraged entity operating in a risky and volatile industry."

The firm is also being investigated by the UK’s Financial Reporting Council (FRC) and the Accountancy and Actuarial Discipline Board over the allegations, which were originally published in a report on Lehman’s collapse by bankruptcy lawyer Anton Valukas.
add to favouritesnewsletterlink to this pagesend to friendpost comments

Link to this page

Copy and Paste the following HTML into your page.