Ernst & Young Sued In Lehman Brothers Investigation
LINDA WERTHEIMER, host:
New York's Attorney General Andrew Cuomo is also making an accusation of financial wrongdoing. His office filed a civil suit yesterday against Ernst & Young. The accounting firm allegedly helped the investment bank Lehman Brothers hide its financial problems in the years leading up to the bank's collapse.
NPR's Jim Zarroli has more.
JIM ZARROLI: The suit says that as its financial troubles intensified, Lehman Brothers began using an accounting transaction called Repo 105 to cover up its problems. The transaction essentially allowed Lehman to sell off assets temporarily in order to make its books look better and then buy them back a few days later.
Richard Herring is a professor of international banking at the University of Pennsylvania's Wharton School.
Professor RICHARD HERRING (Wharton School, University of Pennsylvania): What makes it look so suspicious is that there was no business reason to do so, and it is something that they each did much more intensively at the end of each reporting period. So it was window dressing, pure and simple.
ZARROLI: New York officials say Ernst & Young repeatedly signed off on the transactions, even though some people at Lehman were nervous about what was happening. One Lehman executive wrote an email in which he referred to Repo 105 as, quote, "another drug we're on."
But investors and analysts never fully grasped what was happening. The suit calls on Ernst & Young to return all of the fees it got from auditing Lehman between 2001 and its collapse in September 2008, and also to pay damages. The accounting firm had no immediate comment about the suit.
Jim Zarroli, NPR News, New York.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.