Lehman Brothers/Ernst & Young:

The fall-out from the Madoff fraud continues. New York Attorney General Andrew Cuomo sued Ernst & Young, saying the accounting firm helped Lehman Brothers Holdings take actions to deceive the public about Lehman’s financial condition. “This practice was a house-of-cards business model designed to hide billions in liabilities in the years before Lehman collapsed,” Mr. Cuomo said Tuesday in a statement. “Just as troubling, a global accounting firm, tasked with auditing Lehman’s financial statements, helped hide this crucial information from the investing public.”  The state seeks to recover fees collected by Ernst & Young Mr. Cuomo said.

Lehman, once the fourth-largest investment bank, failed in September 2008 because of risky real estate bets and too much debt, which it tried to hide from investors, according to bankruptcy examiner Anton Valukas’ report. Mr. Valukas, in his report, said Ernst & Young could be sued for “professional malpractice” for its role as auditor.

The case was filed in U.S. District Court in New York. Lehman’s Chapter 11 case is in U.S. Bankruptcy Court in New York.

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