Lehman

» Print

This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to colleagues, clients or customers, use the Reprints tool at the top of any article or visit: www.reutersreprints.com.

Ernst & Young accused of hiding Lehman troubles

Tue, Dec 21 2010

By Grant McCool

NEW YORK (Reuters) - Accounting firm Ernst & Young was sued by New York prosecutors over allegations it helped to hide Lehman Brothers' financial problems, in 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 seeks more than $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 one factor in bringing the case was that he knows that the U.S. Securities and Exchange Commission already is 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.

In a statement on Tuesday, 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," the accounting firm said.

Legal and accounting...