NEW YORK CITY-A 2008 lawsuit by Lehman Brothers investors has gotten a new lease on life, thanks to a court-appointed examiner’s report last month that was sharply critical of the bankrupt investment firm’s accounting practices, including understatement of its commercial real estate exposure. Attorneys for the investors filed an amended complaint Friday in US District Court in Manhattan, adding Ernst & Young, which approved Lehman’s financial statements, to the list of defendants. An E&Y spokesman defends the firm’s performance as Lehman’s auditor.

The amended class-action suit alleges that through its stock offering materials, Lehman failed to disclose that it used Repo 105 transactions to temporarily reduce its net leverage ratio at the end of each quarter, that the Repo 105 transactions “had the effect of materially understating” the firm’s liquidity risk, that Lehman disregarded its own risk limits and that the firm overstated the value of its commercial real estate assets. These assets included the $22-billion acquisition of Archstone-Smith with Tishman Speyer Properties in 2007—an acquisition that put Lehman “clearly in excess of its established risk limits,” the suit alleges, quoting the report by bankruptcy examiner Anton Valukas.

In the commercial real estate sphere, Lehman failed to disclose “adequately or meaningfully” its risk concentrations in “highly risky Alt-A loans, illiquid commercial real estate assets and leveraged loan commitments,” the lawsuit alleges. “In addition, the offering materials failed to disclose that Lehman had heavy concentrations of illiquid assets, such as residential and commercial real estate with deteriorating values.”

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