Bloomberg reported Monday that Ernst & Young LLP will be sued by New York Attorney General Andrew Cuomo for fraud. An unnamed source told Bloomberg Ernst & Young is being sued for its alleged role in Lehman Brothers' collapse.
The suit will focus on audits and quarterly reviews Ernst & Young prepared for Lehman Brothers, "which helped downplay the firm's liabilities," Bloomberg reports.
Bloomberg cites a report by Anton Valukas, a bankruptcy examiner, which found Lehman Brothers used Repo 105 trades to temporarily reduce its balance sheet by between $38.6 billion in the fourth quarter of 2007 and $50.4 billion in the second quarter of 2008.
In a footnote in his report, Valukas wrote that the "balance sheet manipulation was intentional, for deceptive appearances, had a material impact on Lehman’s net leverage ratio, and, because Lehman did not disclose the accounting treatment of these transactions, rendered Lehman’s Forms 10â€K and 10â€Q (financial statements and MD&A) deceptive and misleading."