Company insiders told the Financial Times that Merrill Lynch staff contacted both the Securities and Exchange Commission and the New York Federal Reserve in March 2008 about Lehman Brothers using questionable methods to improve the state of its balance sheet.
The move was made by Merrill Lynch in response to claims from Lehman Brothers in the first quarter of 2008 that it had stronger levels of liquidity than its rivals in the brokerage market.
"We started getting calls from our counterparties and investors in our debt," said one Merrill Lynch employee.
"Since we didn't believe the Lehman numbers and thought their calculations were aggressive, we called the regulators."
Earlier this week, a lawyer representing former Lehman Brothers executive Matthew Lee said that his client was made redundant by the company in June 2008 for highlighting unethical accounting practices to the bank's auditor Ernst and Young.
By Tony Aynsley