Via Francine McKenna @ re: The Auditors. You can also take a look at a case study I did on Lehman Brothers here.
Ernst & Young, take my word for it, will never be indicted by the U.S. government, as a firm, for its role in any Lehman fraud that’s eventually proven. It’s also highly unlikely – 1000 to 1 odds I’d say – EY will be fined by the SEC or the PCAOB, as a firm, in a civil or disciplinary case.
The Ernst & Young partners named in the bankruptcy examiner’s report, and maybe a national practice partner, might be sanctioned by the PCAOB or SEC. Later. Much later. We can predict the timing based on the SEC’s handling of the Bally’s sanctions. Even with a slam dunk case, the SEC waited six years before they settled with EY. The eventual sanctions against six Ernst & Young partners for the Bally’s fraud were too little and much too late to provide a deterrent or any real justice.
Ernst & Young, as a firm, and their individual partners are named as additional defendants in private lawsuits against Lehman executives. But the New York Court of Appeals in a 4-3 opinion refused to hold the auditors responsible for their role in frauds perpetrated by management in the Kirschner (Refco Trustee) v. KPMG and Teachers’ Retirement v. PwC (re: AIG 2002-2005 fraud) cases. The opinion reaffirmed the application of the in pari delicto doctrine and the principle of imputation in these cases.
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