New York Attorney General Eric Schneiderman says his office has reached a $10 million settlement with EY over its role in auditing Lehman Brothers financial statements, which infamously hid tens of billions in leverage before collapsing in 2008 at the peak of the financial crisis.

"After many years of costly litigation we are pleased to put this matter behind us, with no findings of wrongdoing by EY or any of its professionals,” EY said in a written statement.

Schneiderman says the $10 million will be distributed as restitution to Lehman Brothers investors, along with $99 million paid by EY to settle a private federal class action. An unspecified portion of the $10 million settlement will be retained by the state of New York for investigation and litigation costs.

New York pursued action against EY in Manhattan Supreme Court alleging EY approved Lehman’s use of “Repo 105” transactions to transfer off the balance sheet investment grade securities for cash, but with a binding agreement to repurchase the securities often in only a few days. The transfers occurred around key financial reporting dates so as to remove leverage from Lehman’s balance sheet.

New York says EY allowed the treatment of the transfers as sales without disclosure to investors that they were financings. “The Repos 105 transactions served no legitimate business purpose,” said Schneiderman in a statement. “Lehman used the funds derived from the transactions to pay down billions of dollars of liabilities, which had the effect of temporarily and misleadingly reducing Lehman’s leverage ratios, an important metric for analyzing Lehman’s liquidity and financial health.”

EY said when the case was filed that it has no factual or legal basis and represented an attempt by the Attorney General to direct claims at the audit firm rather than the company that took the alleged actions. “Lehman’s audited financial statements clearly portrayed Lehman as a highly leveraged entity operating in a risky and volatile industry,” EY said. “In short, Lehman’s bankruptcy was not caused by any accounting issues. We look forward to presenting the facts in a court of law.”

The Financial Accounting Standards Board revised the accounting rules around repurchase agreements in 2011 to close the loophole through which Lehman’s accounting apparently slipped. The Securities and Exchange Commission launched a search and warning in 2010 to determine other companies might be relying on repurchase guidance to hide debt and to deter the practice.