Ernst And Young To Face Civil Fraud Charges For Lehman Accounting

Prosecutors in New York are set to file civil fraud charges against accounting firm Ernst & Young over the collapse of Lehman Brothers, the Wall Street Journal said, citing people familiar with the matter.

The suit, led by Andrew Cuomo, could come as early as this week and may seek to impose fines and other penalties, the paper said.

No one at Ernst & Young was available for comment outside regular U.S. business hours.

Andrew Cuomo's office could not be reached for comment.

The lawsuit stems from Lehman's use of a controversial accounting technique called Repo 105, the paper said.

Lehman's court-appointed examiner, Anton Valukas, has said that the use of Repo 105, which dated back to 2001 and was used without telling investors or regulators, gave the appearance that Lehman was reducing its overall leverage levels in 2008 when it was not.

Lehman used Repo 105 to temporarily remove $50 billion of assets from its balance sheet in 2008, according to his report released in March.

Copyright 2010 Thomson Reuters. Click for Restrictions.

Comments

[Barista]

01:15 PM on 12/21/2010

The accounting standard setters, FASB, played a major role in the meltdown but so far have not been subjected to the wrath of the media nor the public.

"If you bing "FASB and meltdown" you find tons of support for my statment. Here is an example:
"Former Securities and Exchange Commission chief accountant Lynn Turner says accounting standards-setters "deserve an F" for allowing companies to incorrectly move assets off their balance sheets and for caving in to political pressure to alter rules."

http://www.cfo.com/article.cfm/13234318

[abbienormal]

01:03 AM on 12/22/2010

See my response to you below. The FASB caved because Congress threatened to disband the organization if they did not drop the rules in order to let banks meet their reserve requirements. This happened after the fact.

Tom Linsmeier, a member of the FASB at the time, made a very compelling argument against the change that was prescient and spot on.

[nixrox04]

11:33 AM on 12/21/2010

Too bad Willy Sutton couldn't be here to see some of histories greatest bank robberies and most of them were "inside jobs".

[banker67]

08:54 AM on 12/21/2010

Great, and thanks to the U.S. Supreme Court, corporate officers and investors can't be held accountable for anything, much less go to jail. So after millions of tax dollars are spent prosecuting this company, the firm -- certainly not the owners or the top executives -- will plead 'no contest,' and Fox will report that the company was assessed a 'substantial fine.'
Who committed what crime and how much each criminal stole will, of course, be 'sealed' (classified) by the court so the country-club criminals won't be embarrassed. Nor will the public ever find out if the fine was really paid.
I'm all for prosecuting these vermin, but you don't need a high school degree to know that no one with more than a million in a Swiss bank account will suffer in the least. And all the money stolen by very real people with kids at the finest prep schools and colleges will stay in those illegal foreign account with the tacit (we know, but we never prosecute rich people) approval of the IRS.
Hey, it's the American way.
And I'll reflect upon all this further as soon as I can move my family out from under the freeway overpass and into a nice warm refrigerator shipping carton.

[Pilatunes]

10:05 AM on 12/21/2010

The lack of accountability of corporate executives is astonishing. I worked for one of the big 5 along a time ago, and this conduct doesn't surprise me. I think the phrase 'old boys club' was coined for these damn companies.

Worse still, this 'milk the company, let it go bust, then retire' ethos is all too common. I saw it at Nortel, but now I see it at far, far smaller companies. It seems now that there is a 'business class' that no longer intends to found and run companies indefinitely...they found a company to loot as much as possible in the short term, then leave their creditors and employees in the lurch.

[banker67]

04:21 PM on 12/21/2010

Agree: The damage they do when the loot a company and destroy it is astronomical. All those hardworking employees out of work, no benefits and precious little hope of picking up a comparable job. The press blows away this aspect entirely in favor of the easy he-said/she said quote pairs from lawyers. No use working too hard.
The first step to preserving American employment and a stable tax base would be to put the men responsible for corporate crimes in jail, and fine them enough to make sure they and their families are flat broke -- personally.
That would certainly stop some of the corporate elect.
After that, and probably only in la-la-land, you have to restore progressive income tax and enforce tax laws among the seven-figure set.
Honestly, if I thought I could stash ten million or so in a Swiss bank account just by looting a company, and be assured that the law would never bother me, I would be tempted to do it too. As long as the tax structure allows the thieves to keep 95% of their swag -- or 100% if they hire the right tax attorneys -- and tacitly allows the super-rich to evade even the pittance they do pay with illegal foreign bank accounts, there's no hope. The incentive is just too big to break the law. And the zero estate tax for the super-rich perpetuates the system.

[rotorhead1871]

12:03 AM on 12/21/2010

if they are charging them......their practices are a bit beyond "questionable"

[conservicide]

11:15 PM on 12/20/2010

In the accounting world E&Y have always been known to be crooked.

[ask0]

08:09 AM on 12/21/2010

Why are you saying they are more crooked then the others?

[conservicide]

09:21 PM on 12/21/2010

Just what I hear, that's not to say the others don't have a reputation elsewise.

[stargazer13]

11:12 PM on 12/20/2010

wake me when the list includes Chase Citi JP Morgan BoA Goldman s

and I will dance in the street for JOY !!

[rotorhead1871]

12:04 AM on 12/21/2010

hopefully, you can dance soon!!!

[GloriaY]

10:57 PM on 12/20/2010

You mean that Ernst and Young used another Enron type creative accounting system? Wow!!. Guess that long jail sentences will be coming down the pike. We are feverishly waiting with bated breath and we don't want to be disappointed.

[Lisa Troup]

10:45 PM on 12/20/2010

OH MY!(Mock surprise)They were doing WRONG????(Gasp),COULDN't BE!!...LOL..PLOP!!(the sound I make falling off my chair with LAUGHTER!!!..O;)

[mlm4420]

10:23 PM on 12/20/2010

Ernst & Young will get a slap on the wrist and that will be the end of it...........yawn.

[dragonladywaltham]

10:04 PM on 12/20/2010

Is he the sacrificial lamb? Please don't insult our intelligence by alluding he caused it all by himself.

[poeticjustice4all]

09:58 PM on 12/20/2010

They may seek to impose "fines and other penalties?" This is serious.

[Frog in a pot]

10:11 PM on 12/20/2010

LOL!!
They must be shaking in their gucci loafers.

[Frog in a pot]

09:42 PM on 12/20/2010

“““William K Black

My comments in the Bill Moyers Journal interview about the “Prompt Corrective Action” (PCA) law (adopted in 1991) have sparked considerab­­­­­­le comment in the blogsphere­­­­­­. Here is the portion of the interview transcript that discusses the PCA law.

WILLIAM K. BLACK: Well, certainly in the financial sphere, I am. I think, first, the policies are substantiv­­­­­­ely bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutio­­­­­­ns. And they're refusing to obey the law.

BILL MOYERS: In other words, they could have closed these banks without nationaliz­­­­­­ing them?

WILLIAM K. BLACK: Well, you do a receiversh­­­­­­ip. No one -- Ronald Reagan did receiversh­­­­­­ips. Nobody called it nationaliz­­­­­­ation­.

BILL MOYERS: And that's a law?

WILLIAM K. BLACK: That's the law.

BILL MOYERS: So, Paulson could have done this? Geithner could do this?

WILLIAM K. BLACK: Not could. Was mandated-

BILL MOYERS: By the law.

WILLIAM K. BLACK: By the law”




How did they get away with it?” How are they getting away with it?Why arent they in jail for massive fraud and treason?
Biggest bonus's EVER this year.Those bonus's should be takex at 99.9% rate and we should be clawing back all the money they stole.

The Mickel Milkens have taken over.

[sampson2]

08:22 PM on 12/20/2010

WOW! Questionable accounting practices! Imagine that!!

[JCushing]

07:50 PM on 12/20/2010

I just had a brainwave... why not make all these offenses committed by unregulated CAPITALISTS be deemed CAPITAL cases?

At least we can seek the _death _penalty...

[JCushing]

07:48 PM on 12/20/2010

Once they are fined EandY will just cook a few more books to come up with the fine money. Whoop. Big Whoop.

[cowbore]

12:33 AM on 12/21/2010

and of course they will change the name of the company.