Elvis Fails to Make Ernst & Young Singalong Less Awkward

FT Alphaville found this notable quote from District Judge Lewis Kaplan’s opinion (whole thing after the jump):

The TAC alleges that Lee told E&Y in June 2008 “that Lehman moved $50 billion of inventory off its balance sheet at quarter-end through Repo 105 transactions and that these assets returned to the balance sheet about a week later.” Assuming that is so, E&Y arguably was on 308 notice by June 2008 that Lehman had used Repo 105s to portray its net leverage more favorably than its financial position warranted, a circumstance that could well have resulted in the published balance sheet for that quarter being inconsistent with GAAP’s overall requirement of fair presentation. Accordingly, the TAC adequately alleges that E&Y misrepresented in the 2Q08 that it was “not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles” notwithstanding Lee’s disclosure to it.

“Lee” you may remember is Matthew Lee Lee, the Senior VP for Global Balance Sheet and Legal Entity Accounting who also said this about E&Y’s reaction to his warning on Repo 105:

They certainly didn’t support it. On the Repo 105 issue, they knew about it; they did not appear to know that the number was so large.

Ouch.

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