A jury trial is scheduled to begin Monday in hedge fund Costa Brava's lawsuit against accounting firm Goodman & Co. over its audits of defense technology contractor Telos.

Costa Brava, run by investment group Roark, Rearden & Hamot, filed suit in December 2005, alleging that the audit firm attempted "to cloak in a false veil of legitimacy" the efforts of Telos and its board to deprive Costa Brava of its mandatory right of redemption and delay payment of millions of dollars in dividends. Costa Brava bought over 500,000 shares of Telos preferred stock, which were supposed to bear semi-annual dividends at an annual rate of 12 percent. Telos did not pay the dividends but nevertheless received a clean audit opinion from Goodman for Telos's 2004 10-K report, according to the lawsuit.

PricewaterhouseCoopers had previously withdrawn as Telos' auditor. Goodman has withdrawn now as well, and Reznick Group is now auditing Telos.

Costa Brava is suing for damages of over $50 million, treble the original damages of $17 million, according to a representative for Costa Brava. Costa Brava has a separate suit pending against Telos, and expects to call Telos executives to testify in the Goodman case. Representatives for Goodman did not respond to a request for comment.

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