E&Y accused of Lehman whitewash: Report

"New York's attorney general Andrew Cuomo is accusing E&Y of helping Lehman Brothers disguise its financial condition for more than seven years, while collecting more than USD 150 million in fees from the firm," The Wall Street Journal reported.

The lawsuit filed by Cumo alleges that firms engaged in practices to temporarily erase as much as USD 50 billion in Lehman assets. This often occurred near the end of a quarter, allegedly making the company look much healthier than it was, the report noted.The two companies worked together from 2001 until Lehman's 2008 collapse.

The accounting maneuver, called Repo 105, was used to shift the assets off Lehman's books in return for a promise to buy back the securities at a premium days later. Cash received by Lehman immediately was used to pay down other debts.

"Ernst directly facilitated an accounting sleight of hand that burnished the securities firm's balance sheet," the report said quoting the lawsuit.

While citing E&Y's statement, the report said that there was "no factual or legal basis" to bring a claim against the firm, and that it would vigorously defend against the claims in Cuomo's lawsuit.

"Lehman's accounting was in accordance with generally accepted accounting principles, and Lehman's bankruptcy was not caused by any accounting issues," it added.

The 32-page civil-fraud lawsuit depicts a cozy relationship between the big accounting firm and its client. Two of Lehman's chief financial officers -- Christopher O'Meara and David Goldfarb were former E&Y employees during much of the seven-year period when the transactions in question occurred

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