Accounting firm Ernst & Young LLC may face civil fraud charges in New York for its alleged role in the demise of Lehman Brothers, according to a report.
The Wall Street Journal, citing anonymous sources, said in a Monday article that State Attorney General and New York governor-elect Andrew Cuomo may file the lawsuit this week, with the state possibly seeking fines and other penalties. The case alleges that Ernst & Young did not act in the appropriate manner while Lehman misled investors about its financial condition.
Lehman was one of Ernst & Young’s biggest clients before the investment bank’s collapse in 2008 when the financial crisis intensified. The report says Ernst & Young made about $100 million in fees from 2001 through 2008 for its auditing work.
An Ernst & Young spokesman declined to comment on the report.
The potential lawsuit focuses on Lehman transactions that include repurchase agreements and its alleged attempts to have investors falsely believe it was more financially stable than it really was. The report says Ernst & Young approved of the transactions and gave the company a complete audit opinion from 2001 through 2007.
While charges may be looming, Ernst & Young may try to settle before any lawsuit is filed, the report added.