A $170-million judgment against BDO Seidman LLP could put the global firm out of business. The firm plans to appeal.
A Florida jury found BDO guilty of gross negligence for failing to spot a fraud that led to the bankruptcy of E.S. Bankest LLC, a Miami-based financial-services company, and the loss of $170 million in investor funds, the Wall Street Journal reports. The verdict leaves BDO potentially open to punitive damages that under Florida law could be triple the amount that investors initially claimed. In a legal filing last September, the firm said such a penalty could sink the firm.
The verdict was a victory for Banco Espirito Santo SA, a Portuguese bank that is a former investor in Bankest. Banco Espirito sued BDO, claiming the auditor negligently failed to spot the fraud. In assessing damages, the jury will weigh BDO’s role against the role of others at Bankest, who actually perpetrated the fraud. Two former Bankest executives have been sent to prison after being convicted on criminal charges connected to the fraud.
An attorney who represented Banco Espirito, said the jury’s verdict showed that BDO “chose not to do the right thing” in its audit work and was compromised by a conflict of interest involving one of its executives and a company connected to privately held Bankest. BDO said it disagreed with the jury’s finding and that the firm is “confident that this verdict will be reversed on appeal.”
In a separate action, BDO is suing Banco Espirito Santo, claiming the directors it appointed to Bankest’s board were negligent.
More at the Miami Herald…