As Lehman's financial condition declined, the company relied increasingly on Repo 105 transactions—and E&Y ought to have questioned this practice, the suit alleges. The complaint quotes Valukas' report as stating, "Ernst & Young knew or should have known that the notes to the financial statements were false and misleading because, among other things, those notes describe all repos as 'financings,' which Ernst & Young knew was not the case, and those notes did not disclose the Repo 105 transactions."

E&Y's spokesman disputes the complaint's allegations. "We are confident in our ability to successfully defend ourselves against claims arising from our work with Lehman Brothers," the spokesman tells GlobeSt.com. "Throughout our period as the auditor of Lehman, we firmly believe our work met all applicable professional standards, applying the rules that existed at the time."

Lehman's bankruptcy, the E&Y spokesman adds, "was the result of a series of unprecedented adverse events in the financial markets. As the bankruptcy examiner has acknowledged, Lehman's bankruptcy was caused by a collapse in its liquidity, which in turn was caused by declining asset values and loss of market confidence in Lehman. It was not caused by any accounting issues."

The suit, which names Lehman officers including former CEO Richard Fuld Jr. as defendants, was originally filed in '08 by a group of institutional investors including the Alameda County Employees' Retirement Association, Government of Guam Retirement Fund, Northern Ireland Local Government Officers' Superannuation Committee, City of Edinburgh Council as Administering Authority of the Lothian Pension Fund and Operating Engineers Local 3 Trust Fund. It has since been joined by numerous other investors.

The amended suit seeks damages including interest and requests a jury trial. Calls to the defendants' legal team were not returned by deadline.