E&Y's Lehman audit under UK probe

Ernst & Young, the auditor for Lehman Brothers Holdings, is under investigation by Britain's accounting regulator over the way it dealt with the investment bank's off-balance-sheet transactions in the UK. The probe will cover E&Y's preparation and audits of Lehman Brothers international Europe for the year ended November 30, 2007, the financial reporting council in London said in a statement.
An independent tribunal will hear the complaint, it said."If the tribunal upholds a complaint, there is a wide range of sanctions which it can impose, including an unlimited fine" and "withdrawal of practicing certificates or licenses," the regulator said in the statement. The watchdog first said in March that it was investigating E&Y's auditing of transactions known as Repo 105s.
The deals helped Lehman downplay its leverage in late 2007 and 2008, according to a 2,200-page report on the bank's collapse. The study, filed March 11 by bankruptcy examiner Anton Valukas in New York, said E&Y could be accused of "professional malpractice" for its role.
The auditor said in March it would cooperate "fully with all relevant parties on this matter." The Repo transactions increased just before the end of financial reporting periods, temporarily moving $49 billion to $50 billion of assets off the balance sheet in the first and second quarters of 2008, Valukas's report said.