A class-action lawsuit by former sharehold-
ers of Lehman Brothers has been amended to
add the defunct investment bank’s auditor,
Big Four firm Ernst & Young, as a defendant.
The amended complaint from a group of
investors also describes the repurchase transactions detailed in the recent report of bankruptcy examiner Anton Valukas.
The shareholder suit was originally filed
following wipe-out losses stemming from
the firm’s Sept. 15, 2008, bankruptcy filing,
the largest in U.S. history. Investors allege
that in the period leading to the bankruptcy,
Lehman officers, including ex-chief executive
Richard Fuld, made repeated misstatements
about the firm’s financial health, including
minimizing its exposure to weakening residential and commercial real estate markets.
In the newly filed complaint, plaintiffs
claim that Lehman used certain repurchase
and resale transactions, known as “Repo 105”
and “Repo 108” transactions, to temporarily remove tens of billions of dollars’ worth
of assets from its balance sheet at the end of
financial reporting periods, and that Lehman
executed the repo agreements solely to fraudulently prop up its disclosure statements.
The complaint takes note of Valukas’ testimony to the House Committee on Financial
Services back in April: “[T]he public did not
know there were holes in the reported liquidity pool, nor did it know that Lehman’s risk
controls were being ignored, or that reported
leverage numbers were artificially deflated.
Billions of Lehman shares traded on misin-
The amended complaint further notes Va-
lukas’s statement that Ernst & Young “knew or
should have known” that parts of Lehman’s
financial statements were false and mislead-
ing. “Ernst & Young had a professional obliga-
tion to communicate the issue to both senior
management and the Audit Committee and
to recommend corrections of the Forms 10-
Q, and also to either issue modified review
reports noting the materially inadequate
disclosures, or to withhold its review reports
altogether,” said Valukas.
The complaint notes that the Big Four audi-
tor was made aware of Lehman’s improper
use of Repo 105 transactions during its inves-
tigation of claims made by a whistleblower.
UBS AND E&Y SETTLE
NEW YORK — Swiss bank UBS and its former auditor, Ernst & Young, have agreed
to pay $250.5 million to settle lawsuits
brought by shareholders of HealthSouth
in the wake of the hospital operator’s
accounting fraud. Under the settlements,
which must be approved by a judge,
UBS’s insurers will pay $117 million to
HealthSouth stockholders and $100 million to the health care provider’s bondholders. Ernst & Young will pay $33.5
million to bondholders. Both UBS and
E&Y have denied any wrongdoing.
The IRS’s Criminal Investigation Division
needs to improve the way it manages the
criminal tax investigations it refers to the Justice Department for prosecution, according
to a new government report.
The Treasury Inspector General for Tax Administration evaluated the steady increase
beginning in 2003 in the number of criminal
tax cases pending in the prosecution pipeline
at the Justice Department and the impact this
had on the CI Division’s resources.
TIGTA confirmed steady growth in the
number of criminal cases in the prosecution
pipeline, rising from 2,733 in 2002 to 3,915
in 2009. The CI Division believes that the
pipeline’s increase began when the Justice
Department shifted its operational priorities
to focus on national security issues.
CID and Justice Department officials interviewed by TIGTA described long-standing challenges that exist in the working re-
IRS criminal investigators need better strategy
lationship between the two organizations.
These include, in part, a preference by some
prosecutors to seek indictments on drug,
currency or money-laundering cases, rather
than criminal tax cases; prioritization of cases
based on the time remaining on the statutory
limitations period; and competing demands
for prosecuting attorneys’ time and attention
in large metropolitan locations.
“While criminal tax cases must sometimes
compete for attention against cases involv-
ing other high-profile felony charges and na-
tional security issues, their value in deterring
criminal tax fraud is significant,” said TIGTA
Inspector General J. Russell George in a state-
ment. “Our review found that the Criminal
Investigation Division can do its part to bring
such matters to trial by adopting practices
that will permit more strategic management
of its caseload inventory.”
TIG TA recommended that the IRS create a
structured oversight system to monitor and
more effectively manage the prosecution
pipeline process, create a strategic manage-
ment team to develop innovative policies
and procedures to ensure tax cases receive
appropriate attention and resolution by the
Justice Department, develop additional tech-
niques that refine the prosecution pipeline
performance measures, and ensure that the
IRS commissioner receives necessary infor-
mation to have a clear depiction of the in-
vestigative resources devoted to prosecution
pipeline inventory actions.
FAF AND XBRL US SIGN PACT
NORWALK, CONN. — XBRL US and the
Financial Accounting Foundation have
inked a three-year agreement to conduct joint research on further developing interactive data tags for financial
statements. The FAF and XBRL US Labs
will collaborate to foster the U.S. GAAP
taxonomy for XBRL and to promote
interoperability and consistency between
future versions of that taxonomy with
other financial reporting taxonomies that
XBRL US will develop and implement.
The research will build on tools and
techniques developed by XBRL US Labs
to maintain and publish taxonomies for
tagging financial statements. XBRL US
Labs is also engaged in other research
projects to standardize common business reports for mutual funds, credit
ratings, mortgage-backed securities, and
corporate actions such as dividends and
mergers, as well as projects for using
XBRL for tax filings, and a research and
development effort to bring XBRL apps
to the Apple iPhone and iPad.
SURFING FOR PORN AT THE SEC
WASHINGTON, D.C. — The Securities and
Exchange Commission’s Office of the
Inspector General found that at least 33
SEC employees and contractors used
government computers to view porno-graphic images in the past five years.
Many of the employees were at a senior level and earned substantial salaries.
Several admitted in testimony that they
had misused resources and official time
to view pornography. One regional office
staff accountant received over 16,000
access denials for Web sites classified by
the SEC’s Internet filter as either “sex” or
“pornography” in a one-month period.