Manhattan Supreme Court Justice Jeffrey Oing (See Profile) ruled yesterday that New York’s attorney general cannot force auditing firm Ernst & Young to disgorge $150 million in fees it collected from Lehman Brothers Holdings Inc. The attorney general is seeking the money as part of a lawsuit accusing Ernst & Young of helping Lehman engage in deceptive accounting.

Oing ruled from the bench that the remedy of disgorgement was not available because neither the state nor the people of New York had paid Ernst & Young the fees. The attorney general will still be able to seek damages through other means. The lawsuit, filed in 2010, accused Ernst & Young of helping Lehman pull off “a massive accounting fraud” before it went bankrupt (NYLJ, Dec. 23, 2010). It focused on so-called “Repo 105″ transactions, accounting maneuvers that temporarily moved debt off Lehman’s books by classifying a short-term loan as a sale. Lehman used Repo 105 transactions multiple times before its bankruptcy. The attorney general alleged that Ernst & Young knew about Lehman’s Repo 105 transactions and even advised the investment bank about them.

Ernst & Young has maintained that the transactions were allowed under the Generally Accepted Accounting Principles, which established by the Financial Accounting Standards Board. The board has since changed the standards to require transactions like Lehmnan’s Repo 105s to be recorded as liabilities. The case is People v. Ernst & Young, 451586/10.