The University of California (UC) filed suit on April 14 against Big Four accounting firm Ernst & Young LLP and 32 other defendants, claiming it misrepresented the financial situation of America Online and Time Warner around the time of the firms’ 2001 merger.

AOL stock plummeted soon after the merger with Time-Warner and UC lost $450 million.

In the suit, the university claims that E&Y, concerned with holding on to a fat contract, helped falsify financial facts and continued to offer an unqualified audit opinion of the company long after it was clear that the company was in trouble.

An EY spokesman denied the charges. "We continue to strongly stand behind our work," E&Y spokesman Ken Kerrigan said.

Despite the lawsuit, another branch of E&Y will continue its wide-scale review of the University of California's Los Alamos National Laboratory’s financial operations. The university manages the laboratory, which is the subject of congressional charges of theft, fraud and mismanagement.

"It's like you being indicted because your brother stole something," UC spokesman Trey Davis said. "It's really quite separate."

Only a few firms are qualified to do the kind of work E&Y is doing at Los Alamos and more than 30 consultants from E&Y’s government contract services group are involved in a top-to-bottom review of the lab’s operations.