E&Y 'sat silently' as Lehmans tried to hide financial troubles

Ernst & Young (E&Y) "sat by silently" as Lehman Brothers tried to hide its financial problems from investors in the months before its collapse, US prosecutors have alleged in a lawsuit.

The action is the first to target a major accounting firm for its role in the financial crisis, the Telegraph reports.

E&Y, one of the world's "Big Four" accounting firms, is alleged to have approved of Lehman's increasingly frequent use of a device known as Repo 105. This allowed the bank to sell troubled loans before it released results and then buy them back afterwards.

The accountants made more than $150m (£96m) in fees auditing Lehman's books between 2001 and the 2008, according to the suit.

Lehman Brothers collapse in September 2008 triggered a deepening of the financial crisis.

"These Repo 105 transactions had no independent business purpose and were designed solely to enable Lehman to manage the company's financial balance sheet 'metrics'," the 32-page suit alleges.

"We intend to vigorously defend against the civil claims alleged by the New York Attorney," Ernst & Young said.

"In short, Lehman's bankruptcy was not caused by any accounting issues."

The suit was filed yesterday by New York State Attorney Andrew Cuomo, who becomes the State's governor next month.