A Florida jury returned a verdict recently against the accounting firm BDO Seidman and awarded $421 million in damages. The jury found that since Belgian-based BDO International didn’t control member BDO Seidman, it wasn’t responsible for the U.S. firm’s failure to uncover fraud that cost a Portuguese bank $170 million. The Miami-Dade jury verdict means that only BDO Seidman will be responsible for the $170 million in damages that another Miami-Dade jury awarded Banco Espirito Santo in 2007. In that trial, $351 million of the verdict was for punitive damages. Chicago-based BDO Seidman is appealing the 2007 verdict.
In the 2007 trial, the jury found that BDO Seidman was grossly negligent in not detecting fraud while auditing the books of the Miami financial services firm, E.S. Bankest, from 1998 to 2002. Espirito Santo owned 50% of E.S. Bankest. BDO International originally was a Defendant in the 2007 trial, but was dismissed from the case after a judge found the bank didn’t present any evidence establishing its claim against the Brussels firm. But the ruling was overturned by an appeals court, which ordered that a new jury should decide whether BDO International was responsible for ensuring the quality of BDO Seidman’s audits.
E.S. Bankest was a factoring firm, set up to buy companies’ accounts receivable at a discount. Factoring firms collect the full payments, pocketing the difference as profit. But in the case of E.S. Bankest, the bills it supposedly collected were largely fake. Several E.S. Bankest executives were sentenced to federal prison for their roles in the fraud. The firm collapsed in 2003.
Source: Miami Herald
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