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Ernst &Young Agrees to Pay $99 Million in Lehman Settlement; Auditor Was Sued Over Investment Bank's 'Repo 105' Transactions Rapoport, Michael . Wall Street Journal (Online) ; New York, N.Y. [New York, N.Y]18 Oct 2013: n/a.

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ABSTRACT  

The litigation had claimed that Lehman's officials, underwriters and auditors misled investors about its financial

health, leverage, risk management and exposure to risky mortgage and real-estate assets when the bank sold the

investors billions of dollars in Lehman securities.

FULL TEXT  

Ernst &Young LLP has agreed to pay $99 million to settle investor class-action allegations that it turned a blind eye

when its audit client Lehman Brothers Holdings Inc. misled investors before the investment bank's 2008 collapse.

The investors and Ernst "have reached an agreement in principle" to settle the litigation, the accounting firm and

plaintiffs' attorneys both said. The two sides are in the process of drafting a formal settlement agreement,

plaintiffs' attorneys said in a letter filed Wednesday in U.S. District Court in Manhattan.

The settlement, which was reported this week by legal publications, will be subject to court approval.

Ernst said in a statement that it "denies all liability" in the case and "chose to settle this claim to put this matter

behind us."

The litigation had claimed that Lehman's officials, underwriters and auditors misled investors about its financial

health, leverage, risk management and exposure to risky mortgage and real-estate assets when the bank sold the

investors billions of dollars in Lehman securities. Those investors suffered big losses when Lehman collapsed into

bankruptcy in September 2008.

In particular, the investors alleged, Ernst &Young gave Lehman's financial statements a clean bill of health even

though the firm knew the bank was using an accounting maneuver known as "Repo 105"--repurchase agreements

that allowed Lehman to temporarily lower its leverage--to make itself appear healthier than it really was.

In 2011, a judge dismissed some of the claims against Ernst, but he allowed one claim to continue alleging that the

audit firm made misstatements in July 2008 about Lehman's compliance with accounting rules when it was aware

that the bank was using Repo 105 to temporarily move $50 billion in assets off its balance sheet.

Lehman underwriters, officers and directors had previously agreed to settle the class-action litigation. The

underwriters agreed in 2011 to a $426.2 million settlement, and Lehman's officers and directors agreed to pay

another $90 million.

A separate lawsuit from 2010 in which the New York attorney general's office made similar allegations against

Ernst is still pending. Last December, a judge blocked Attorney General Eric Schneiderman from seeking to recover

the $150 million in fees that Ernst received from Lehman, but the attorney general is appealing, and the ruling

allowed his office to continue pursuing damages and restitution from Ernst on behalf of investors.

"We have no intention of dropping our case" in the wake of the settlement, said a spokeswoman for Mr.

Schneiderman.

Write to Michael Rapoport at [email protected]

Credit: Michael Rapoport

DETAILS

Subject: Attorneys general; Litigation

People: Schneiderman, Eric

Company / organization: Name: District Court-US; NAICS: 922110; Name: Lehman Brothers Holdings Inc;

NAICS: 523110, 551112; Name: Ernst &Young LLP; NAICS: 541211

Publication title: Wall Street Journal (Online); New York, N.Y.

Pages: n/a

Publication year: 2013

Publication date: Oct 18, 2013

Section: Markets

Publisher: Dow Jones &Company Inc

Place of publication: New York, N.Y.

Country of publication: United States, New York, N.Y.

Publication subject: Business And Economics

Source type: Newspapers

Language of publication: English

Document type: News

ProQuest document ID: 1442768679

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Last updated: 2017-11-20

Database: ProQuest Central