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Lehman accounting firm sued
By Grant McCool |
December 23, 2010, Thursday
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Print Edition
Print Edition
ACCOUNTING firm Ernst & Young is being sued by New York prosecutors over allegations it helped hide Lehman Brothers' financial problems.
It is the first major government legal action stemming from the Wall Street company's 2008 downfall.
The civil fraud case contends that Ernst & Young stood by while Lehman used accounting gimmickry to mask its shaky finances.
The lawsuit says Lehman ran "a massive accounting fraud," but it did not name as defendants any former top executives at the investment bank whose September 2008 collapse helped spark the global financial crisis.
The lawsuit is seeking more than US$150 million in fees that Ernst & Young received from 2001 to 2008 as Lehman's outside auditor - less than 1 percent of its global annual revenue - plus other unspecified damages.
The lawsuit was filed by New York Attorney General Andrew Cuomo. People close to Cuomo said that one factor in bringing the case was that he knows the United States Securities and Exchange Commission is already investigating former Lehman chief Richard Fuld and other former top Lehman executives.
Cuomo "wants to go after the one party he knows isn't being sued," said John Coffee, a professor of corporate law at Columbia University.
Ernst & Young said it intended to "vigorously defend" the lawsuit.
Lehman's bankruptcy occurred in the midst of a global financial crisis and was not caused by any accounting issues, the company said.
"Lehman's audited financial statements clearly portrayed Lehman as a highly leveraged entity operating in a risky and volatile industry," it said.
Cuomo said in the civil complaint that for more than seven years leading up to Lehman's bankruptcy, the investment bank engaged in fraudulent accounting transactions that Ernst & Young explicitly approved.
The case focuses on an accounting technique known as Repo 105, which temporarily removed as much as US$50 billion in assets from the balance sheet in 2008.
London-based Ernst & Young employs about 140,000 people.
It had revenue of US$21.3 billion in the fiscal year ended June 30.
It is the first major government legal action stemming from the Wall Street company's 2008 downfall.
The civil fraud case contends that Ernst & Young stood by while Lehman used accounting gimmickry to mask its shaky finances.
The lawsuit says Lehman ran "a massive accounting fraud," but it did not name as defendants any former top executives at the investment bank whose September 2008 collapse helped spark the global financial crisis.
The lawsuit is seeking more than US$150 million in fees that Ernst & Young received from 2001 to 2008 as Lehman's outside auditor - less than 1 percent of its global annual revenue - plus other unspecified damages.
The lawsuit was filed by New York Attorney General Andrew Cuomo. People close to Cuomo said that one factor in bringing the case was that he knows the United States Securities and Exchange Commission is already investigating former Lehman chief Richard Fuld and other former top Lehman executives.
Cuomo "wants to go after the one party he knows isn't being sued," said John Coffee, a professor of corporate law at Columbia University.
Ernst & Young said it intended to "vigorously defend" the lawsuit.
Lehman's bankruptcy occurred in the midst of a global financial crisis and was not caused by any accounting issues, the company said.
"Lehman's audited financial statements clearly portrayed Lehman as a highly leveraged entity operating in a risky and volatile industry," it said.
Cuomo said in the civil complaint that for more than seven years leading up to Lehman's bankruptcy, the investment bank engaged in fraudulent accounting transactions that Ernst & Young explicitly approved.
The case focuses on an accounting technique known as Repo 105, which temporarily removed as much as US$50 billion in assets from the balance sheet in 2008.
London-based Ernst & Young employs about 140,000 people.
It had revenue of US$21.3 billion in the fiscal year ended June 30.
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