Ernst & Young Faces Fraud Charges For Role in Lehman Collapse

The Wall Street Journal is reporting that civil fraud charges against Big Four accounting firm Ernst & Young for its alleged role in the collapse of Lehman Brothers may come as early as this week. New York State Attorney General Andrew Cuomo is reportedly close to filing the case against Ernst & Young for allowing its client, Lehman Brothers, to mislead investors about its financial health. This is the first a major accounting firm has been singled out for its role in the financial crisis. Allegations state that between 2001 and 2007, Lehman Bros. engaged in a practice called "window dressing" that involved lowering their repurchase agreement, or repo, debt to make their quarterly reports appear less risk-burdened. The investment bank dubbed the transactions "Repo 105" and moved $50 billion in assets off its balance sheet by labeling securities loans as sales. Ernst & Young auditors supposedly approved of Lehman's Repo 105 transactions and earned approximately $100 million in fees for their auditing work between 2001 and 2008. Other regulators, including the SEC, are also investigating the Lehman Bros. collapse.