December 20, 2010 / 8:51 AM / 9 years ago

UPDATE 1-New York prosecutors set to sue Ernst & Young - report

* Lawsuit over Lehman collapse could come this week - paper

* Suit stems from use of controversial accounting technique

(Adds Ernst & Young comment)

LONDON, Dec 20 (Reuters) - Prosecutors in New York are set to file civil fraud charges against accounting firm Ernst & Young LLC [ERNY.UL] over the collapse of Lehman Brothers Holdings Inc LEHMQ.PK, the Wall Street Journal said on Monday, citing people familiar with the matter.

The suit, led by Andrew Cuomo, could come as early as this week and may seek to impose fines and other penalties, the paper said.

A spokeswoman for Ernst & Young said the company did not comment on speculation and repeated a previous statement made by the firm about its dealings with Lehman Brothers.

“Throughout our period as the auditor of Lehman, we firmly believe our work met all applicable professional standards, applying the rules that existed at the time,” the statement said.

Andrew Cuomo’s office could not be reached for comment.

The lawsuit stems from Lehman’s use of a controversial accounting technique called Repo 105, the paper said.

Lehman’s court-appointed examiner, Anton Valukas, has said that the use of Repo 105, which dated back to 2001 and was used without telling investors or regulators, gave the appearance that Lehman was reducing its overall leverage levels in 2008 when it was not.

Lehman used Repo 105 to temporarily remove $50 billion of assets from its balance sheet in 2008, according to his report released in March. [ID:nN12157852] (Reporting by Santosh Nadgir in Bangalore and Kylie MacLellan in London; Editing by Greg Mahlich)

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