Accounting firm Ernst & Young is being sued by New York prosecutors over allegations that it helped to hide Lehman Brothers' financial problems. It is the first major US 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 does 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 $150m in fees that Ernst & Young received from 2001 to 2008 as Lehman's outside auditor - less than 1% 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 US Securities and Exchange Commission already is investigating former Lehman chief Richard Fuld and other former top Lehman executives.
In a statement last night, 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.
Legal and accounting experts said earlier they expected Ernst & Young to try to settle the case rather than engage in a long court fight. It is the third-largest by revenue of the 'Big Four' US accounting firms, behind Deloitte and PwC.
