Ernst & Young Cleared in U.K.’s Lehman Client-Funds Probe

Ernst & Young LLP won’t face action in the U.K. over its audits of Lehman Brothers Holdings Inc.’s London unit, the U.K.’s accounting regulator said after an investigation lasting more than two years.

The probe focused on whether Ernst & Young had ensured whether the bank complied with client-asset-separation rules, the Financial Reporting Council said in an e-mailed statement.

The FRC “decided that there is no realistic prospect that a tribunal would make an adverse finding against E&Y in the U.K. or members within that firm,” the agency said in the statement. “The investigation will therefore be closed and no further action taken.”

The regulator also cleared Ernst & Young in a separate probe last year over the way it dealt with the bank’s off-balance-sheet transactions during 2007. The probe focused on its accounting for Lehman’s so-called Repo 105 and Repo 108 transactions, which helped the bank raise short-term funds before its collapse.

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