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Monday 15th of March 2010
March 12, 2010    

Report reveals “accounting gimmicks” used at Lehman

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by Kay Murchie
Report reveals “accounting gimmicks” used at Lehman

Accountancy firm Ernst & Young (E&Y) has been criticised in a 2,200-page report over the collapse of Lehman Brothers, and could face legal action as a result.

The report has accused E&Y of negligence, while senior management at the bank were said to be involved in “lazy accounting gimmicks” to conceal the fact that the bank was insolvent.

However, E&Y said that its last audit of Lehman was “fairly presented” according to accounting rules.

In a statement, the accountancy firm said: “Our last audit of the company was for the fiscal year ending November 30, 2007. Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles (GAAP), and we remain of that view.”

Anton Valukas, chairman of law firm Jenner & Block, has discovered that Lehman was insolvent for weeks before filing for bankruptcy in 2008.

It was also found the bank used an accounting method known as “Repo 105” to temporarily remove $50 billion of assets from its balance sheet.

Mr Valukas, who was appointed as examiner by the judge handling Lehman’s bankruptcy, said Lehman could pursue claims against E&Y for “professional malpractice”, while claims against former Lehman chief executive Dick Fuld and chief financial officers Chris O’Meara, Erin Callan and Ian Lowitt, could also pursued.

Mr Valukas concluded: “Lehman’s failure to disclose the use of an accounting device to significantly and temporarily lower leverage, at the same time that it affirmatively represented those “low” leverage numbers to investors as positive news, created a misleading portrayal of Lehman’s true financial health.”

Lehman Brothers collapsed in September 2008, which then led to a crisis that swept through global financial markets.

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Tags: accounting gimmicks, Anton Valukas, , Ernst & Young, examiner, Jenner & Block, , , Repo 105, , senior executives