Dodging Penalties For Accounting Fraud


Ernst & Young Too Big To Be Accountable

The latest gift to the financial services industry takes Ernst & Young off the hook for missing Lehman Brothers’ accounting fraud in 2007. The arbitration panel dealing with the liabilities of the banker and its auditor just found “no basis for a malpractice claim against Ernst & Young.”*

This is not about chump change. Lehman Brothers accounting folks moved tens of billions of dollars in debt to cook its quarterly reports. It’s one thing to mislead stockholders, regulators, consumers and stock analysts. But it’s harder to believe that its own outside accountants and top execs did not notice.

For this latest episode of non-accountability, all three pillars of the financial industry’s Avoid The Blame strategy is on full display:

1-The Top Dog Didn’t Know defense argued, yes, the top brass should have known but since they did not know it is OK.

2-The good old “generally accepted accounting principles” argument was made, but since everyone else does it, stop picking on us.

3-The “We did nothing wrong” thesis, which rests on laws, regulations and precedents tailored by the White House, congress and regulators to the needs of the industry when caught cooking its books.

That the industry gets away with it demonstrates that the sound of fury of the White House and Congress over how the financial services industry still operates amounts to all talk and no punch. Why does this matter to ordinary consumers? Answer: They’re playing with our money and they assume we’ll bail them out again.

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*Matthew Goldstein’s, Arbitrators Ease Blame on Auditors of Lehman, New York Times Business Day, pages B1, 12 August 2014.

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