Ernst & Young settles Lehman case for $10 million
Auditing firm Ernst & Young agreed to a $10 million settlement over its alleged role in a fraud involving now-defunct Lehman Brothers Holdings, the New York Attorney General's Office announced on Wednesday.
The bulk of the $10 million will be paid to Lehman investors as restitution. That's on top of another $99 million Ernst & Young agreed to pay to settle a related class action. Lehman Brothers went under in 2008, one of the sparks that ignited the global financial crisis.
The settlement of the state lawsuit, filed in 2010, closes out the first case filed against the auditor of a public company under New York securities laws, the Attorney General's office said.
"The basic duty and legal obligation of auditors is to ensure that the public companies they audit provide reliable and unbiased information about their operations to the investing public," Attorney General Eric T. Schneiderman said in a statement. "If auditors issue opinions that are unreliable or provide cover for their clients by helping to hide material information, that harms the investing public, our economy, and our country."
Ernst & Young allegedly participated in a scheme involving Lehman Brothers getting paid cash in overseas transactions for securities that it would quickly buy back. Those transactions were used as a reason to remove "tens of billions of dollars" in securities from the company's balance sheets.
The transactions were solely intended to make it appear Lehman Brothers was in a far stronger position financially than it really was. Ernst & Young, while aware of the transactions, did not flag them and did not object as the information was used allegedly mislead analysts.
New York officials alleged that Ernst & Young's role amounted to fraud.