Ernst & Young to pay $10m over Lehman accounting

Ernst & Young will pay a $10m penalty for allegedly helping Lehman Brothers hide its precarious financial situation, marking the only legal enforcement action by US authorities so far since the 2008 collapse of the investment bank.

The settlement with the New York state attorney-general's office also reflects the end of major lawsuits against EY related to its work for Lehman, which filed for bankruptcy in September 2008.

Lehman's collapse sparked a market panic that led to massive bank bailouts and an economic downturn from which the US is still recovering. Regulators overhauled rules to force banks to hold more capital, reduce leverage and increase liquidity in the hope of avoiding another Lehman-like failure.

EY was accused of approving Lehman's accounting for certain short-term financing transactions that kept tens of billions of dollars off the bank's balance sheet, which helped mask its leverage.

The auditing firm also did not object to Lehman allegedly misleading analysts during earnings calls over its leverage ratio and did not inform the bank's audit committee about a whistle-blower's concerns about the bank's finances, according to the attorney-general's office.

"If auditors issue opinions that are unreliable or provide cover for their clients by helping to hide material information, that harms the investing public, our economy, and our country," Eric Schneiderman, New York attorney-general, said.

His office, which sued EY in 2010, originally sought $150m in damages and fees the auditing firm earned from Lehman from 2001 to 2008.

But Mr Schneiderman's office was limited in the amount it could seek from after the auditing firm agreed to pay about $99m to settle a private class action lawsuit a year ago.

Most of the $10m fine in the attorney-general's settlement will be distributed to Lehman investors.

"After many years of costly litigation we are pleased to put this matter behind us, with no findings of wrongdoing by EY or any of its professionals," the firm said in a statement.

The Department of Justice and the Securities and Exchange Commission have investigated Lehman for years but so far, no cases have been brought and many of the probes have been closed.

In February, US Attorney General Eric Holder, the top law enforcement official in the country, gave prosecutors 90 days to decide whether they have enough evidence to bring charges against high-level individuals in relation to the 2008 financial crisis.

Critics, including Senator Elizabeth Warren, have questioned why bank executives have not been prosecuted for their role in bringing about the worst economic downturn since the Great Depression.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation