BDO Seidman was ordered to pay $170 million in compensation and $350 million in punitive damages by a Florida jury that blamed the accounting firm for negligence in failing to uncover fraud in its audits of a financial services company.
The case involved E.S. Bankest LLC, which went bankrupt and left one of its backers, the Portuguese bank Banco Espirito Santo, with massive losses. BDO had audited the company and showed Bankest tripling its income from 1995 to 1996, which induced Banco Espirito Santo to enter into a partnership with Bankest. Bankest used a financial scheme called "factoring" to create fraudulent loans. Seven people, including two Bankest directors, have been convicted of fraud and received jail sentences.
The case has gone through several trials, including one in March that ended in a mistrial. Then a jury found in June that BDO was grossly negligent in its Bankest audits.
BDO Seidman said the amount of the award could lead to huge layoffs and hurt its standing as one of the top accounting firms. The firm said it would appeal the decision and that it has a history of successfully appealing jury decisions in Florida.
"BDO Seidman respectfully but forcefully disagrees with this verdict," said a statement by the firm. "The firm intends to ask the trial court to set it aside and, failing that, to appeal. This is an interim decision in a long process and a contingency that was anticipated. We remain confident of achieving a just resolution at the appellate level. The firm has a long track record of successes on appeal and will pursue this until all issues have been reviewed--if necessary by the Florida Supreme Court."
BDO has successfully appealed two earlier decisions in the state of Florida in cases involving Universal Casualty and BCA. Both were jury verdicts that the firm won on appeal and paid nothing, according to a spokesperson.
