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Ernst & Young fined $10m over Lehman audits

by: Mortgage Solutions
  • 17/04/2015
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Ernst & Young fined $10m over Lehman audits
Ernst & Young (EY) has paid $10m to settle claims it was negligent in its duty as auditor when it failed to raise the alarm when Lehman Brothers was heading towards collapse.

The settlement marks the end of a four-year legal fight and is the first successful action by a law enforcement authority in connection with Lehman’s bankruptcy according to a report on the Telegraph, quoting the New York attorney general.

Central to the investigation was Lehman’s use of Repo 105, an accounting device within the firm that allowed it to temporarily sell securities to shift risk off its balance sheet.

The transactions lasted no longer than a few days, enabling Lehman to remove tens of billions of dollars from its balance sheet without triggering a reporting requirement.

EY failed to object to Lehman using this technique to mislead investors about its liquidity and financial health, the attorney general said.

Lehman filed for bankruptcy on September 15, 2008, marking the beginning of the international financial crisis.

The money from the $10m fine will be used to reimburse investors as well as paying back the state of New York for the cost of the investigation.

It follows an agreement from EY in 2013 to pay $99m to settle a class action brought by investors over the same issue.

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