The finger-pointing over who was responsible for the collapse of Lehman Brothers continues nearly six years after the firm filed for bankruptcy at the height of the financial crisis.
Now, an arbitration panel has dealt with the liability of one of those parties, finding no basis for a malpractice claim against Ernst & Young, the big accounting firm that audited Lehman?s books.
The panel of three former judges ruled in April that it was Lehman?s management, not Ernst, that was most responsible for setting in motion and maintaining a controversial accounting maneuver that allowed the firm to temporarily move tens of billions of dollars in debt off its balance sheet at the end of every quarter.
The previously unreported ruling could complicate a pending lawsuit the New York attorney general?s office filed against Ernst in 2010 over the collapse of Lehman. The lawsuit accused Ernst of helping Lehman engineer an accounting fraud that made it look less leveraged than it truly was in the months before its collapse in September 2008.
The arbitration ruling could also rekindle debate about the Securities and Exchange Commission?s decision not to pursue an enforcement action against Lehman or any of its former executives over the accounting maneuver, known as Repo 105. In 2012, the SEC closed its investigation into the collapse of Lehman after months of internal debate about the merits of bringing an action.
In March 2010, Anton Valukas, a court-appointed bankruptcy examiner and former federal prosecutor, found that Lehman?s management used the Repo 105 transactions to mislead investors and manipulate the firm?s leverage levels at the end of each quarter.
The 2,200-page report compiled by Valukas, the chairman of Jenner & Block, was widely seen as providing a road map to regulators for cases against Lehman, its former executives and Ernst related to the Repo 105 transactions.
But the SEC decided that the end-of-the-quarter balance sheet adjustments did not contribute to the firm?s undoing and that it was unclear whether Lehman?s chief executive, Richard S Fuld Jr, knew the details of the accounting maneuvers.
Some critics see the SEC?s decision not to bring an enforcement action against Lehman or Fuld as a serious failure of the government?s effort to hold Wall Street officials accountable for the financial crisis.
The 14-page arbitration award, signed by two former federal judges and former New York appellate judge, does not mention Mr. Fuld by name and makes only passing reference to a few other former Lehman executives. But the arbitrators concluded that the firm?s top executives should shoulder the brunt of the blame for misleading investors about Lehman?s financial fitness.