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Ernst & Young faces legal action over Lehman's collapse

Accounting giant being sued for allegedly falsifying the books of doomed investment bank Lehman Brot

Accounting firm Ernst & Young could face legal action for allegedly falsifying the books of investment bank Lehman Brothers, beforethe latter's collapse.

New York attorney general Andrew Cuomo is reportedly preparing to sue the auditor this week for "window dressing" the company's accounts, concealing its ill health.

Analysts say the case would set a precedent for initiating legal proceedings against a prominent accounting group over its role in the financial crisis of 2008.

The attorney general's office has been looking into the part that Ernst & Young played in Lehman's acquisition of repurchase agreements to beef up the bank's accounts.

This follows a report into Lehman's bankruptcy, issued nine months ago, which was severely critical of Ernst & Young. According to the report, the auditor did not contest the "materially misleading" reports filed by the management.

The civil lawsuit is a part of bigger enquiry into whether banking institutions deceived investors by using accounting tactics to temporarily cover up the large amounts of debt in their accounts.