From the Wall Street Journal:
New York prosecutors are poised to file civil fraud charges against Ernst & Young for its alleged role in the collapse of Lehman Brothers, saying the Big Four accounting firm stood by while the investment bank misled investors about its financial health…
The suit stems from transactions Lehman allegedly carried out to make its risk appear lower than it actually was…
The suit, led by Mr. Cuomo, New York’s governor-elect, could come as early as this week. It is part of a broader investigation into whether some banks misled investors by removing debt from their balance sheets before they reported their financial results to mask their true levels of risk-taking, a person familiar with the case said. The state may seek to impose fines and other penalties…
The attorney general’s investigation, which began after the bankruptcy examiner’s report, found that Ernst & Young specifically approved of Lehman’s use of Repo 105 transactions and provided the investment bank with a complete audit opinion from 2001 through 2007…
The Lehman bankruptcy examiner’s report also stated that there may be evidence to support negligence and malpractice claims against Ernst & Young regarding Lehman’s audits and its lack of response to a whistle-blower at Lehman who raised red flags about the repo trades.
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