Here’s Some of the Loot Big 4 Firms Are Giving to Recruits (UPDATE) – Even More Stuff

Or throws another scalp on the pile, whatever you prefer.

The Journal is obviously very cozy with the Governor-elect:

New York Attorney General Andrew Cuomo filed a lawsuit against Ernst & Young for civil fraud Tuesday, accusing one of the nation’s largest accounting firms of helping Lehman Brothers Holdings Inc. hide its financial weakness from investors for about seven years before the bank finally collapsed in September of 2008.

Ernst & Young knew about, supported and advised Lehman on its “Rs, a type of debt the bank took on, but labeled as sales, which made the firm appear to investors less risky than it really was, according to the complaint. The audit firm also stood by while Lehman misled analysts and investors on conference calls and in financial filings about its levels of risk, particularly after the firm’s stability began to crack after the credit crisis began in 2007, said the complaint.

“Ernst & Young substantially assisted Lehman Brothers Holdings Inc., now bankrupt, to engage in a massive accounting fraud,” Mr. Cuomo wrote in his complaint.

Now that the AG has pulled the trigger on this, we’re wondering what’s next. E&Y still isn’t talking, other than the statement they’ve been giving since the bankruptcy examiner’s report came out in March. One comment suggested a settlement in the nine figure range which would put them in proximity of the DOJ’s fine of KPMG back in 2005.

Colin Barr over a Fortune reports that Cuomo wants at least the audit fees back ($150 million, according to the complaint):

The complaint, filed in state Supreme Court, seeks the repayment of at least $150 million in fees the audit firm collected between 2001, when Lehman’s aggressive accounting began, and 2008, when the venerable bank collapsed, precipitating a global bank run.

“Our lawsuit seeks to recover the fees collected by Ernst & Young while it was supposed to be using accountable, honest measures to protect the public,” said Attorney General Andrew Cuomo.

Something tells us that Cuomo won’t be satisfied by simply the audit fees; we’re talking about the largest bankruptcy in history, after all. If you feel like ballparking the fine, we wouldn’t turn away any outlandish guesses.

UPDATE: Felix Salmon also points out E&Y’s lack of communicado:

E&Y knew this was coming—we all did—but despite that fact, its only public reaction so far has been to refuse to comment. That doesn’t look good, and it forces us back to what the company said in the wake of the Valukas report—that its work as Lehman auditor “met all applicable professional standards,” whatever that’s supposed to mean.

He also agrees with us that the fine will be greater than the $150 million and notes (not hiding his disappointment) that no partners were named, “E&Y will avoid admitting blame and also avoid criminal prosecution. […] [T]he only defendant is Ernst & Young LLP; there are no named individuals on the list. So E&Y’s partners are probably safe too. Sadly.”

Unless, of course, the SEC or PCAOB opt to take up that disciplinary slack. Don’t forget that some people think that Cuomo is making this move because he wants the “last scalp” before leaving the AG’s office for the Governor’s mansion. We realize pinning hopes on the SEC and PCAOB isn’t exactly comforting for those wishing to see more action but maybe Cuomo’s actions are the motivation they needed.

We’ll keep you updated throughout the day and if there’s any internal word from the hallowed walls of 5 Times Square, do email us the details.