Ernst Files to Move New York AG Suit to Federal Court

Accounting firm Ernst & Young LLP is moving a lawsuit by New York’s attorney general over its audits of Lehman Brothers Holdings Inc. to federal court from state court, saying the case depends on questions of federal auditing standards.

Ernst & Young was sued last month by then-Attorney General Andrew Cuomo over allegations it helped hide Lehman’s financial problems before the investment bank filed for bankruptcy protection in September 2008.

Cuomo’s lawsuit was the first major government legal action stemming from Lehman’s downfall, the largest ever U.S. bankruptcy. It said Ernst & Young stood by while Lehman ran a “massive accounting fraud” to mask its true leverage.

In a filing Wednesday, Ernst & Young said litigation over whether it complied with federal auditing standards must be heard in federal court, citing U.S. securities law and the Sarbanes-Oxley corporate governance act.

A spokesman for current New York Attorney General Eric Schneiderman did not have an immediate comment.

Ernst & Young plans to ask that the case be assigned to U.S. District Judge Lewis Kaplan, who is handling similar legal issues in another Lehman case.

The case is New York v. Ernst & Young LLP, U.S. District Court, Southern District of New York No. 11-00384. The other Lehman case is In re: Lehman Brothers Securities and ERISA Litigation in the same court, No 09-md-2017.

(Reporting by Dena Aubin; editing by Andre Grenon)