Ernst and Young may be sued for fraud by New York attorney general Andrew Cuomo for allegedly helping Lehman Brothers Holdings mislead investors, according to a person familiar with the matter.
Mr Cuomo, who was elected governor last month, may file the lawsuit this week, said the person, who wasn't authorised to speak publicly about the case. The suit would relate to Ernst and Young's audits of Lehman transactions aimed at downplaying its liabilities, the person said, adding that a settlement is still possible.
Richard Bamberger, a spokesman for Mr Cuomo's office, declined to comment. Charles Perkins, a spokesman for Ernst and Young, didn't immediately return a call before business hours.
The Wall Street Journal reported on the potential lawsuit earlier today.
Lehman, once the fourth-largest investment bank, failed in September 2008 because of risky real estate bets and too much debt, which it tried to hide from investors, according to bankruptcy examiner Anton Valukas's report.
Mr Valukas, in the report, said Ernst and Young could be accused of "professional malpractice" for its role as auditor.
The UK accounting regulator, the Financial Reporting Council, said earlier this year it was investigating Ernst and Young's auditing of so-called Repo 105 transactions. The deals helped Lehman downplay its leverage in late 2007 and 2008 by temporarily moving about $50 billion in assets off the firm's balance sheet, according to Mr Valukas's 2,200-page report.
Bloomberg