Miami (May 20, 2004) -- Banco Espirito Santo International Ltd. and some of its affiliates have filed a lawsuit against Chicago-based firm BDO Seidman and its global affiliate, BDO International, alleging that the firm "rubber-stamped" phony financial statements in its 1998 to 2002 audits of E.S. Bankest LC and its predecessor.
The suit, filed Tuesday in Miami Circuit Court, seeks more than $170 million in damages and alleges that BDO Seidman had conflicting interests and was negligent in auditing E.S. Bankest LC and its predecessor over an eight-year period.
According to the lawsuit, BDO "rubber-stamped four years’ worth of obviously false financial statements, causing plaintiffs to be bilked out of more than $170 million. Moreover, BDO did so while it was -- or because it was -- a strategic ally of an affiliated company that was used to falsify the very financials BDO was 'independently' auditing."
The suit alleges that at the time BDO issued its opinions as Bankest's auditor, BDO was a strategic partner with Stratasys Group LLC, a Bankest affiliate that was used to carry out the fraud. Stratasys was controlled by Dominick Parlapiano, who was indicted by the U.S. government and recently pled guilty to various charges, according to the filing. The lawsuit further alleges that Parlapiano had a "social relationship" with Sandy Lenner, the BDO audit partner in charge of the account.
"BDO's 'unqualified' audit opinions claimed to present 'fairly, in all material respects, the financial position of' Bankest, when in fact Bankest's financial statements falsely showed over $200 million in assets when in reality there were almost none," a statement issued by the plaintiffs’ lawyers said.
The accounting firm refuted the claims. "Contrary to the baseless allegations in the complaint, at no time did BDO accept consulting fees from ES Bankest," BDO said in a statement. "ES Bankest was solely an audit client and any fees paid to BDO were insubstantial."
A statement issued by the accounting firm said, "While it is our policy not to comment on matters in litigation, and we are bound by professional confidentiality constraints, the wild accusations in this action are without basis in fact."
The firm added that it acted "at all times consistently with its professional obligations" in connection with its audits of ES Bankest, and that its audit opinions were based on the proper application of generally accepted auditing standards and information provided by the company.
Responding to an article in The Miami Herald that drew comparisons to the Enron case and alleged that audit procedures were compromised by a lack of auditor independence, BDO said, "No such compromise occurred here. Indeed, unfounded comparisons with Enron suggest an absence of hard evidence and a motive to litigate by press release."
-- Melissa Klein Aguilar
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