new york attorney general andrew cuomo sued ernst young accusing the firm of facilitating a major accounting fraud by helping lehman brothers deceive the public about its financial conditionfor more than seven years before lehman declared bankruptcy in 2008 the investment bank engaged in transactions approved by ey whose purpose was to move debt off its balance sheet and make it appear less leveraged cuomo said this was done through what are known as repo 105 transactionsthis practice was a houseofcards business model designed to hide billions in liabilities in the years before lehman collapsed cuomo said on wednesday in one of his last cases as attorney general just as troubling a global accounting firm tasked with auditing lehmans financial statements helped hide this crucial information from the investing public the state seeks to recover more than 150 million in fees collected by ey for performing lehmans work between 2001 and 2008 plus investor damages and equitable relief cuomo said ey intends to vigorously defend against cuomos allegations the firm said on wednesday the accounting for repo 105 trades conformed with us rules giving cuomo no factual or legal basis for a claim it said lehmans audited financial statements clearly portrayed lehman as a highly leveraged entity operating in a risky and volatile industry it said responding to cuomos allegation that investors were deceived by lehmans financial reportslehman once the fourthlargest investment bank failed in september 2008 because of risky real estate bets and too much debt which it tried to hide from investors partly by using socalled repo 105 trades according to bankruptcy examiner anton valukass reportrepo 105 transactions or sale and repurchase agreements are a form of shortterm financing that lehman used to move as much as 50 billion off its balance sheet temporarily to show investors it wasnt carrying too much debt according to valukas and cuomo higher leverage undermines a firms capacity to absorb financial shock and scares off lendersin 2007 and 2008 before lehman collapsed the company was reporting net leverage ratios of 125 to 161 cuomo said referring to the investment banks measure of how much debt it had the ratios were materially misleading because they ignored 39 billion to 50 billion of repo 105 assets that were temporarily removed from lehmans balance sheet he said the bank hid these assets in a group of derivatives in footnotes to its financial statements he said bloomberg