By Nick Brown
NEW YORK | Fri Oct 18, 2013 5:18pm EDT
NEW YORK Oct 18 (Reuters) - Former Lehman Brothers investors have reached a $99 million settlement with Ernst & Young, the defunct financial firm's erstwhile auditor, over allegations it helped Lehman misstate its financial records.
In a letter filed this week in federal court in Manhattan, lawyers for the plaintiffs (the investors) in the case said they had reached a preliminary deal on which they will seek court approval.
The agreement, under which Ernst & Young would pay the investors $99 million, signals the end of a massive class action against Lehman's former directors, as well as several other financial institutions, over the infamous "Repo 105" accounting practice Lehman is accused of using to misleadingly understate its leverage.
The plaintiffs asked the court to suspend the case while the sides draft a settlement agreement.
"The settling parties are currently drafting a detailed stipulation of settlement and anticipate" asking the court for permission to notify class members of the deal in "approximately 30 days," the plaintiffs said in the letter.
Lawyers for Ernst & Young did not immediately respond to a request for comment.
Ernst & Young is the last defendant still involved in the case. Bank of America Corp, Morgan Stanley and more than 30 other underwriters of Lehman debt reached a $417 million settlement in December 2011, while Lehman's former officers, including ex-Chief Executive Richard Fuld, settled for $90 million.
The case goes back to 2008, when Lehman's historic collapse served as a key catalyst to the global financial crisis.
Investors filed the lawsuit that year, accusing Lehman directors of painting a misleading picture of Lehman's health in financial statements and securities offerings. Ernst & Young and the underwriters contributed to the fraud by failing to investigate and ensure the truthfulness of the statements, the investors alleged.
Lehman ended its three-year Chapter 11 in 2011 with a liquidation plan slated to repay creditors about $65 billion, or an average of about 21 cents on the dollar for allowed claims.
The case is In re Lehman Brothers Equity/Debt Securities Litigation, U.S. District Court, Southern District of New York, No. 08-cv-05523.
Lehman's bankruptcy is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.
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