Prior to filing for bankruptcy in 2008, Lehman Brothers Holding Inc., [LBHI] relied upon select repurchase agreements denominated “Repo 105” and “Repo 108” for the purpose of re-casting its balance sheet to meet net leverage ratios required by money markets. SFAS 140, as then existing without the 2011 amendment, provided a mechanism to treat “ordinary borrowings” as “asset sales”. LBHI used SFAS 140 to justify Repo 105 and Repo 108 transactions to engineer its balance sheet. The accounting treatment resulted in the publication of misleading quarterly and annual Financial Statements relied upon by external users to make investment decisions. In 2011 and 2012, the Southern District of New York issued opinions in the consolidated LBHI litigation. The finding that LBHI correctly applied the criteria of SFAS 140 to justify “borrowings” as “asset sales” under Repo 105 and Repo 108 is fundamentally flawed. During the period 2000 until 2008, Ernst & Young [E&Y] served as the outside auditor of LBHI. Legal principles governing the obligations of auditors support a finding that E&Y committed professional malpractice by issuing unqualified audit opinions knowing that LBHI failed to disclose its liabilities to repurchase transferred securities under Repo 105 and Repo 108 transactions. Economic analysis of non-contractual obligations [tort] supports a reformulation of the legal standard governing auditor liability to external users of audited financial statements containing materially misleading information. The reformulated standard allocates incentives to take precautions both to the audit firm and to the external user to achieve an efficient allocation of the cost of harm ensuing from defective information products.