Auditing giant Ernst & Young was added to a list of defendants in an amended class-action lawsuit over the September 2008 bankruptcy of Lehman Brothers Holdings.
David Kessler, an attorney with Barroway Topaz Kessler Meltzer & Check, co-lead counsel for the plaintiffs, which include pension funds such as the $3.8 billion Alameda County Employees' Retirement Association, Oakland, Calif., noted the auditor's role in approving the accounting for a series of repurchase agreements that purportedly allowed Lehman to temporarily remove tens of billions of dollars in assets from its books as quarterly reporting periods drew to a close. That, in turn, allowed the company to report a decreased leverage ratio, suggesting a lower risk profile than it actually had, he noted.
Mr. Kessler said the amended complaint draws on the recent findings of a bankruptcy court-appointed examiner, whose conclusions “confirmed our theories that Lehman's assets had been overvalued in numerous ways, and its liquidity overstated.”
In an e-mailed statement, Ernst & Young expressed confidence in its ability to defend itself against those claims. In the statement, Charles Perkins, director of public relations for the Americas, noted that Lehman's bankruptcy was caused by the unprecedented collapse in market liquidity in 2008, rather than accounting issues. “Throughout our period as the auditor of Lehman, we firmly believe our work met all applicable professional standards, applying the rules that existed at the time,” he said.