Ernst & Young filed suit against New York state asking the court to dismiss the state's claim for recovery of fees paid to the Big 4 accounting firm by now-defunt Lehman Brothers.  At issue is the finding by a court-appointed examiner who, in December 2010, found E & Y "professionally negligent" for allegedly helping Lehman to hide its financial problems. E&Y maintains in the suit that, because Lehman paid the fees, New York cannot go after them as disgorgement or restitution for investors. E&Y further maintains that, since the overwhelming majority of fees collected from Lehman had nothing to do with the NY Attorney General's complaint, the state has no right or justification to disgorge the auditor  of all its fees received from Lehman since 2001 - plus restitution and damages. Notorious 'Repo 105'. At the heart of the case is an accounting gimmick or technique known as Repo 105, in which Lehman entered into short-term repurchase agreements at the end of various accounting period, booking them as sales and not loans - which is in fact what repos are.  Lehman used the technique to temporarily "cleanse" or move as much as $50 billion from its balance sheet, while also reducting its reported leverage. It is New York state's contention that, by signing off on this accounting method used by audit client Lehman Bros., the 3rd-largest auditing firm acted improperly.  E&Y responds that it had acted properly and that Lehman's accounting complied with national standards. Lehman itself, which was not the victim of fraud, is barred from recovering the money, and the law does not allow for the fees to be paid to the state, either, according to Ernst & Young.  New York AG Eric Schneiderman's office declined comment.  [Reuters 1/9/12]