* Judge says state lacks standing on "public injury" issue
* New York sued Ernst & Young in 2010
* E&Y accused of assisting Lehman accounting fraud
* NY had sought fees Lehman paid between 2001 and 2008
By Karen Freifeld
NEW YORK, Dec 12 The New York attorney general
has no authority to claim $150 million in fees that Ernst &
Young earned from Lehman Brothers Holdings in the years leading
up to Lehman's collapse in 2008, a judge ruled on Wednesday.
The state had sought the fees as part of a lawsuit against
Ernst & Young over its auditing of Lehman Brothers. The lawsuit
accuses the firm of assisting Lehman in accounting fraud.
New York State Supreme Court Justice Jeffrey Oing said the
fees could not be recovered by the state because they were not
paid by consumers or the state. "The allegations in this
complaint fail to set forth sufficiently as to exactly what the
public's injury is," Oing said.
James Freedland, a spokesman for New York Attorney General
Eric Schneiderman, declined to comment on the ruling.
Amy Call Well, a spokeswoman for Ernst & Young, said the
firm was pleased with the decision.
The lawsuit, filed in 2010, claimed that for more than seven
years leading up to Lehman's 2008 bankruptcy, Ernst & Young made
use of transactions known as "Repo 105s," which removed tens of
billions of dollars from the bank's balance sheets, misleading
investors and others about the bank's financial condition.
Ernst & Young has said it acted properly and that Lehman's
accounting complied with national standards.
In court, David Ellenhorn, senior trial counsel to the state
attorney general, argued the judge wasn't viewing the relief
correctly. "Disgorgement is a remedy to prevent the wrongdoer
from obtaining ill-gotten gains," he said.
But Oing disagreed. "The disgorgement remedy is not
available," he said.
As part of the case, the New York attorney general can still
pursue claims for investor damages and restitution against Ernst
& Young, if it is successful in proving fraud by the auditor.
However, Ellenhorn said before the ruling that stripping
away the state's ability to recover the fees could eventually
hamper the case. If related investor lawsuits are successful,
the state would not be able to recover the same damages, he told
Lehman filed for bankruptcy protection on Sept. 15, 2008, in
the midst of the financial crisis.
The case is People of the State of New York v. Ernst &
Young, New York State Supreme Court, New York County, No.