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US government sues Ernst & Young

The accounting giant Ernst & Young has been taken to court by a US government agency.

The government's $548m (£350m) fraud and negligence lawsuit alleges that the firm has misstated the assets of one of its clients, the failed Superior Bank.

The suit, brought by the Federal Deposit Insurance, also alleges that Ernst & Young deliberately delayed reporting the error because it was concerned the revelation would scupper an $11bn sale of its consulting subsidiary.

“Clearly, Superior Bank's failure was not caused by any action of ours and we intend to vigorously defend claims against the firm,” Ernst & Young said.

Giant collapse

Superior Bank's downfall was the largest insured financial institution to fail in nearly a decade.

Federal Deposit Insurance had to pay out $750m following the collapse which followed large losses from risky home loans to borrowers with poor credit records.

The accounting firm has already admitted that the bank's assets were overstated by $270m, the suit said.

The owners of Superior Bank, the Chicago-based Pritzker family and the New York developer Alvin Dworman, have denied any responsibility for the bank's failure.

Resignation

Separately, in a filing with the stock market regulator, the New York Mercantile Exchange said that Ernst & Young LLP resigned as its independent auditor during October.

The filing with the Securities and Exchange Commission gave no reason for the resignation.

However, it did say that there were no disagreements between the two parties on “any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure”.

The world's largest physical commodity exchange, Nymex, is now searching for a new auditor.

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