NEW YORK: Ernst & Young (EY) has agreed to pay $99m to former Lehman Brothers investors who have accused the auditor of helping Lehman misstate its financial records before the investment bank’s collapse triggered a financial crisis in 2008.
The agreement, which must still get court approval, signals the end of a massive class action against Lehman’s former directors, as well as several other financial institutions, according to a letter filed on Wednesday in federal court in Manhattan. Lehman is accused of using the infamous “Repo 105” accounting practice to misleadingly understate its leverage to make itself appear more financially solvent.
The investors who brought the lawsuit asked the court to suspend the case while the sides draft a settlement agreement.
“The settling parties are currently drafting a detailed stipulation of settlement and anticipate” asking the court for permission to notify class members of the deal in about 30 days, the investors said in the letter.
E&Y said it denied all liability, settling the case “to put this matter behind us.”
“Lehman’s audited financial statements clearly portrayed Lehman as what it was - a highly leveraged entity operating in a risky and volatile industry; and Lehman’s bankruptcy was not caused by any accounting issues,” Ernst & Young said in a statement.
Ernst & Young is the last defendant still involved in the case. Bank of America Corp, Morgan Stanley and more than 30 other underwriters of Lehman debt reached a $417m settlement in December 2011, while Lehman’s former officers, including ex-Chief Executive Richard Fuld, settled for $90m.
The case goes back to 2008, when Lehman’s historic collapse served as a key catalyst to the global financial crisis.
Investors filed the lawsuit that year, accusing Lehman directors of painting a misleading picture of Lehman’s health in financial statements and securities offerings. E&Y and the underwriters contributed to the fraud by failing to investigate and ensure the truthfulness of the statements, the investors alleged.