Top lawyer: US has a strong case against E&Y

A FORMER New York state attorney has said the lawsuit filed against Ernst & Young (E&Y) for allegedly assisting Lehman Brothers’ financial fraud is likely to be based on strong evidence and have a high chance of success.

Attorney general Andrew Cuomo's office “will have made sure they have a slam dunk for a settlement at the very least,” lawyer and former state prosecutor Stuart Meissner told City A.M. last night.

US lawyers have“typically got significant email correspondence to back up the attorney general’s case,” Meissner said, largely as it has only limited resources and attorneys at its disposal so must be highly selective about the cases it pursues.

Ernst & Young faces a civil complaint of misleading investors about Lehmans’ financial health, by filing clean audits despite being aware that the bank was using an accounting loophole, Repo 105, to remove billions of dollars of risky assets from its balance sheet at the end of each quarter.

Ernst & Young has rebuffed the complaint, issuing a statement today saying it would “vigorously defend itself against the civil claims alleged”.

“There is no factual or legal basis for a claim to be brought against an auditor where the accounting for the underlying transaction is in accordance with the Generally Accepted Accounting Principles,” it said.

Meissner said the case may also have implications for other auditors of banks that subsequently failed or received bailouts.

“It is certainly a shot across the bows of any large public auditing firm auditing financial services firms,” he said, as it showed they could be prosecuted not just by civil litigants, but by the attorney general.

Meissner was a New York state attorney on financial cases under Eliot Spitzer.