20 Nov 2008
Ernst & Young ‘recklessly disregarded’ the true state of Lehman Brothers’ finances in a bid to secure its continued fees, claims a Californian county suing the firm for its role in the biggest corporate bankruptcy in US history.
San Mateo County Investment Pool, a local government investment pool that suffered a $150m loss when Lehman failed, has named the accountancy giant and various Lehman executives in a lawsuit filed last week. ‘This case represents the worst example of the fraud committed by modern day robber barons of Wall Street, who targeted public entities to finance their risky practices,’ said the court filings.
Lead counsel for the plaintiff Joseph W Cotchett said he felt the plaintiff’s chances of recovering some of their losses were ‘good’.
According to the lawsuit, E&Y ‘chose to look the other way and give its stamp of approval to Lehman’s financial condition and risk exposure, rather than risk losing lucrative accounting and auditing fees – estimated at $31m in 2007 alone’. It accuses the auditor of making ‘materially misleading’ statements and says ‘E&Y knew or recklessly disregarded the true financial condition of Lehman’.
A US spokesperson for E&Y was dismissive of the case. ‘The complaint has no merit. Lehman Brothers’ demise was triggered by dramatic and unprecedented market events that continue to be felt throughout the world.’
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