Wednesday, December 22, 2010

Ernst and Young might be on the hook for big-time fraud

NY Attorney General Andrew Cuomo is illustrating his commitment to exposing high finance shenanigans, accounts the Wall Street Journal. Cuomo has levied a suit against the bookkeeping firm Ernst and Young for what is being termed civil fraud. Ernst and Young is getting charged with helping Lehman Brothers Holdings Inc. to hide its ailing balance sheet from individuals for seven years, before the financial institution collapsed in September 2008.

Due to deceptiveness with investors, Ernst and Young gets sued by NY

The Lehman Brothers would hide the truth from investors with the help of Ernst and Young even though individuals were supposed to be told. Not only that, however the company advised “Repo 105″ debt to be taken out by Lehman. Repo 105 is an accounting move where short-term loans are classified on the books as sales, and the cash obtained through the “sale” is used to pay down debt. Thus, a business can conceivably appear as though it’s reducing its leverage by paying down its liabilities – just long enough for it to look good on a published balance sheet. The company then borrows money and repurchases its original assets after the report is then released which makes investors upset.

The Lehman Brothers Holdings Inc. was a risky investment. It didn’t look like it was though.

Being named ‘A massive accounting fraud’

Andrew Cuomo bluntly stated that Ernst and Young “substantially assisted” Lehman Brothers in committing “massive bookkeeping fraud,” claims on which Ernst and Young have declined to comment so far.

According to accounting records, Ernst and Young collected $150 million in fees from Lehman from 2001 to 2008. During that time, Lehman shifted an estimated $50 billion in assets off its balance sheet and moved them to foreign banks when it was time to report financials. Days later, Lehman bought them back, completing their Repo 105 accounting fraudulence.

Ernst and Young had Kevin Reilly as a partner. It said that this was “acceptable” to Attorney General Cuomo.

Articles cited

Wall Street Journal


FOX Business Network coverage of Ernst and Young scandal

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