Is E&Y to blame for the collapse of Lehman Brothers?

By now, many of you have heard quite a bit about the E&Y lawsuit (if you haven’t the Cliff Notes version is that Andrew Cuomo, the outgoing NY Attorney General, has filed a civil suit against E&Y for its role in the collapse of Lehman Brothers).

My question to the AG and everyone else is this – why are you surprised?  

Of course the auditors may have tried to avoid conflict with Lehman’s management over the use of repos to window dress the balance sheet…management was compensating them handsomely and who wants to rock the boat.  But E&Y is not the only firm that has such conflicts, they all do.

In addition, I am quite certain that we will find that the transactions, accounting treatment and the audit all complied with GAAP and relevant professional standards.  Finally, does anyone REALLY believe that Lehman went under because the accounting treatment?  Not a chance.  Lehman went down because of idiotic business decisions, nothing more.  What do you think?  Feel free to weigh in to the debate and let me know if I am completely wrong about this one.

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7 Responses to Is E&Y to blame for the collapse of Lehman Brothers?

  1. You’re right in what you say. The collapse of the company was down to the excessive risk taking by Lehman management. Taking risks with capital which they never had, which meant that potential losses would never be covered …… and when the losses materialised!!!!!!!

  2. Auditors says:

    Interestingly E&Y are in an equally tricky position here in Ireland in relation to their role with failed bank Anglo http://www.rte.ie/news/2011/0418/ernstandyoung.html

  3. Well, for me the crux of the story is in this quote, in which the matter is described as:

    ‘one which gave rise to questions of public concern and was also one of complexity and importance’.

    Fluffy, vague nonsense that doesn’t actually mean anything but sounds legal-ish.

    The activity that Ernst & Young were engaged in sounds a little amoral (rather than outright immoral) to me, but I really don’t understand what law they were breaking.

    Then again, I don’t really know much about US law. Can anyone who does know something give a quick explanation of where E&Y stand from a legal viewpoint?

  4. Po-Dunk says:

    E&Y probably turned a blind eye toward them as how ML misrepresented their financial stmts etc…..

    If there is evidence such as an internal correspondence at e&y talking about turning a blind eye then you can consider that empty grave next to Arthur Anderson occupied…But you would need a whistleblower for this…ie somebody who knew of a cover up and management told them to keep quiet.

  5. Daljinder says:

    The risks should have been highlighted by Ernst and Young but as ever the pressures of time and the stresses that bonuses put managers under encourage the truth to be stretched.

    It’s always easy to criticise with the benefits of hindsight and without being involved in the heat of the process.

  6. I completely agree that the risks should have been highlighted by the auditor, but I think there is more to the issue than this since the Government and all regulators failed to pick up on the risks involved with the real-estate lending practices. There was a general lack of understanding of the market and vechicles used to hide the true risk.

  7. This is brings back some memories!

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