An Update on Lehman and EY

According to an article in the Wall Street Journal:

A lawsuit contending that Lehman Brothers Holdings Inc.'s former officials, underwriters and auditors are responsible for investor losses should go forward for the most part, a federal judge ruled Wednesday.

According to the article, the judge ruled that:

More on Ernst and Young and Lehman Brothers (links)

Going Concern recently interviewed us about E&Y and Lehman--check it out here.  The accounting news source also has a great roundup of other thoughts and opinions on the case from around the blogosphere.  I would also encourage readers to check out David Zaring's thoughts on the matter over at The Conglomerate.

Ernst & Young and Lehman: A Not-So-Happy New Year is in Store

The Wall Street Journal and other news sources are reporting today that Ernst and Young is about to be hit with a civil lawsuit for its dealings with Lehman Brothers before the investment bank filed the largest bankruptcy in history ($691 Billion). We posted a few times earlier in the year on Lehman's use of Repo 105 and 108 transactions (hereafter Repo transactions) and how EY will be perceived in these transactions but it's been quiet for some time now and I was starting to wonder what would become of it. The lawsuit will certainly claim that EY was helping Lehman be obscure in their financial reporting by allowing them to hide debt through the Repo transactions. Here is an excerpt from the Wall Street Journal article:

To What Extent Should We Bail Out Madoff Victims?

For some time now, I've been thinking about the extent to which victims in a Ponzi scheme such as the Madoff scheme should be bailed out by the government. Given the attention in Congress to reform the regulatory environment of the U.S. financial industry, I think this is a timely topic. Also, I've heard many complaints of Madoff investors who think the government should do more for them. (These complaints have been voiced in both the comments on this blog and in the news). To what extent should the American taxpayers help victims of Ponzi schemes? I know this will be a controversial topic but maybe it will generate some comments. I hope you share your thoughts in the comments!

Bank of America charged with fraud in Merrill deal

This is hot off the press (see today's WSJ). NY Attorney General, Andrew Cuomo has charged Bank of America (BofA) and its executives with fraud in regards to BofA's purchase of Merrill Lynch in December 2008. Cuomo argues that BofA knew of but did not disclose the ($16 billion) losses at Merrill to shareholders when it was seeking approval to purchase Merrill.

Today's WSJ says that Cuomo is claiming that BofA also defrauded the U.S. Government (i.e., you and me) by exploiting "the economic fear that existed in late 2008" so that it could get $20 billion in aid from the U.S. Government by saying the losses at Merrill were worse than anticipated.

This quote from today's WSJ summarizes Cuomo's claims:

"We believe bank management understated the Merrill Lynch losses to shareholders to get shareholders to approve the deal then overstated their ability to terminate the agreement to get $20 billion from federal government," Mr. Cuomo said on a conference call.

Sounds like those BofA executives deserve a hefty bonus don't you think?!