WSJ: Ernst & Young Facing Fraud Charges

Submitted by Allison Schiff on Mon, 12/20/2010 - 10:32

According to the Wall Street Journal, New York prosecutors are posed to file civil charges against the Big Four auditor for its alleged role in the collapse of Lehman Brothers, marking the first time a major accounting firm is being targeted for its role in the financial crisis.

The charges, which could be filed as early as this week by Attorney General Andrew Cuomo, are expected to focus on “EY’s role as an enabler of the infamous Repo 105 transactions that Lehman used to ‘window-dress’ its balance sheet,’ says Forbes.com.

According to the WSJ, the suit is part of a broader investigation into whether some banks misled investors by removing debt from their balance sheets before they reported their financial results to mask their true levels of risk-taking. The state may seek to impose fines and other penalties, though it is possible that Ernst & Young will try to settle before any suit is filed.

Ernst & Young earned approximately $100 million in fees for its auditing work between 2001 through 2008 and boasted the now defunct Lehman as one of its biggest clients.

The case will likely be turned over to Attorney General-elect Eric Schneiderman when Cuomo becomes governor in 2011.

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