The US District Court in Manhattan has
rejected former Lehman Brothers executives and
Ernst & Young’s (E&Y) attempt to
dismiss an investor lawsuit claiming they were misled by the Repo
105 practice and the bank’s ability to manage risk ahead of its
bankruptcy.
In a in a 106-page document US District Judge
Lewis Kaplan said the plaintiffs [investors] allegations at this
stage are sufficient in order to continue the proceedings.
Kaplan added the, “plaintiffs have
sufficiently alleged that Lehman had a duty to disclose the Repo
105 transactions based on its statements regarding net
leverage”.
His decision regarding E&Y’s involvement dismissed most of the
specific allegations brought forward by investors, however Kaplan
said due to one particular incident the case against the auditors
cannot be dismissed.
With regards to the plaintiff’s allegations
about “red flags” and E&Y’s alleged violation to comply with US
GAAP requirements Kaplan said it could be called “highly
reckless”.
E&Y said in a statement to US media that
they are pleased the judge has dismissed most of the claims and
strongly believes the firm will ultimately prevail on the remaining
claim.
“As we have said consistently, we stand behind
our work on the Lehman audit and our opinion that Lehman’s
financial statements were fairly stated in accordance with US GAAP,
applying the rules that existed at the time,” the statement by the
firm said.
This case began three months after the banks
collapse in 2008 and is one of many against former Lehman
executives and auditors.
In December 2010, the New York attorney
general’s office began a suit against E&Y claiming it stood by
as Lehman painted a false picture of financial health.
