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December 19, 2010

E&Y could face fraud charges over Lehman

Ernst & Young could be charged with civil fraud by US prosecutors over its role as auditors of collapsed bank Lehman Brothers.

New York State Attorney General Andrew Cuomo is reportedly ready to file the charges, which are based on alleged transactions by Lehman aimed at making the bank’s risk appear lower than it actually was, according sources talking to the Wall Street Journal (WSJ).

The main tool in the alleged fraud are transactions known as Repo 105, which involve repurchase agreements, a form of short-term borrowing that allows banks to assume bigger trading risks.

A US court appointed investigator alleged in March 2010 that Lehman Brothers used the accounting tricks Repo 105 to temporarily move $50 billion off its balance sheets in late 2007 and early 2008. Ernst & Young was auditing Lehman Brothers at the time and gave the bank a clean audit opinion for 2007.

The charges against the Big four firm may be laid as early as this week, reports WSJ.

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