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Another Auditor in the Dock

by Brian Mahany

Federal law enforcement agents have abandoned hopes of prosecuting executives from Lehman Brothers but the firm’s auditing firm may not be so lucky. The New York Attorney General filed fraud charges against Ernst & Young for not reporting Lehman’s true financial condition in the days and months leading up to Lehman’s collapse and bankruptcy.

Prosecutors may have targeted Ernst & Young because they are the last deep pocket remaining. As a result of the bankruptcy, Lehman was left with nothing.

According to the New York complaint, Ernst & Young earned a tidy $150 million for accounting and auditing work in the 7 years before the bankruptcy. Lehman was one of their best clients. The question is whether that $150 million caused Ernst & Young to simply take a blind eye to Lehman’s spiraling financial condition.

Investors – and prosecutors – are getting increasingly frustrated with auditors and other gatekeepers that continue to issue rosy reports of a company’s health while the company is really on the verge of collapse. It’s akin to the captain of the Titanic telling passengers that all is well during the first crucial minutes after the ship hit the iceberg even though the ship was filling with water.

Ernst & Young’s website says the company will “investigate unusual financial activity… and review financial reports.” How well they performed that job remains to be seen. Ernst & Young has denied the charges against it.

Whether Ernst & Young can survive the Lehman collapse remains to be seen. The Enron collapse was lead to the downfall of accounting giant Arthur Andersen.

If you are the victim of an investment fraud, you may be able to bring a claim even if the company you invested in is worthless. Broker dealers, auditors and rating agencies – the so-called gatekeepers – may be liable for your losses.

If you are the victim of an investment fraud or received bad advice from a stockbroker, contact the fraud recovery lawyers at Mahany & Ertl, LLC. Our team of asset recovery lawyers has helped people from Maine to Florida. From FINRA arbitrations to stock fraud to legal and accounting malpractice – we can help.

For more information, contact attorney Brian Mahany for a no nonsense confidential evaluation of your case. Brian can be reached at (414) 704-6731. Offices in Milwaukee, Wisconsin; Detroit, Michigan and Portland, Maine.

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