The subsidiary, Pan-Alberta, which sold natural gas into the US, had a limited hedging programme to protect itself from currency fluctuations.
But, the Financial Times reports, the lawsuit alleges that in late 1996 and 1997 the rogue trader embarked upon a reckless and speculative foreign exchange trading spree, incurring losses of US$49m.
The trader was suspended in 1998 after the company discovered the losses.
TransCanada said it would have been able to limit the losses had E&Y alerted it to the heightened foreign exchange activity.
The accountancy firm said it would defend itself rigourously and that the work was carried out in accordance with professional standards.
E&Y agrees massive payout to settle Cendant audit dispute