Early this year, I did a blog entry on how Ernst & Young was now in big trouble over the way it conducted its audit on failed bank Lehman Brothers. Ernst & Young had signed off on a raft of accounting shenanigans that allowed Lehman Brothers to hide toxic assets and make its debt levels look better than what they actually were. In other words, it made the bank look less risky than it actually was. Ernst&Young colluded in the deception of investors who were taken to the cleaners when Lehman collapsed.
Now The Wall Street Journal reports that the accounting firm is about to face fraud charges. It's taken prosecutors more than two years and it's about bloody time.
Why did Ernst & Young sign off on what was basically a fake financial statement? There were 100 million good reasons. That's how much money the firm made out of Lehman Brothers from 2001 through 2008.
This is significant. Two years after markets imploded, Ernst & Young becomes the first accounting firm to be targeted for its role in the financial crisis. No doubt the partners at KPMG, PricewaterhouseCoopers and Deloitte are nervous. They have also been pulling in big fees for dressing the books of companies.
Hopefully, more accountants will be prosecuted. If regulators have the guts.
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