Accounting firm Goodman & Co. lost a jury verdict on one claim after it was sued by an investor for aiding and abetting a breach of fiduciary duty by Goodman's client Telos.
Costa Brava, an investor in defense contractor Telos, accused Goodman of issuing an audit opinion that had the effect of depriving Costa Brava and other investors of millions of dollars in payments due from redemption of their preferred stock.
Costa Brava argued at the trial that Goodman misled the Securities and Exchange Commission and Telos' former auditors, PricewaterhouseCoopers. Costa Brava also argued that Goodman presold its opinion on whether Telos was still a going concern and approved of a false 10-K in 2004. The jury deliberated for 10 hours and found that Goodman had aided and abetted a breach of fiduciary duty.
However, the jury did not award Costa Brava any damages and did not find for Costa Brava on any other claim. Costa Brava had claimed more than $17 million in damages and asked for treble damages of over $51 million. Goodman did not respond to requests for comment.
Seth Hamot, a managing partner with Costa Brava, said he did not agree with the jury's findings on the other claims. He believes they may have been persuaded by Goodman's argument that Costa Brava had not been damaged, as the stock had risen from the original purchase price of $5 or $6 to $21.
"We don't agree with that analysis at all," he said. Costa Brava may take Goodman back to court for the 2005 and 2006 10-K financial statements it audited, and is in the processing of reviewing them. The investors may also go back to court if Goodman moves to have the jury's verdict of aiding and abetting set aside.
"My opinion is that Mr. [Hobie] Andrews, who represents Goodman, should currently ask the judge to give the scarecrow a brain and the tin man a heart and see how lucky he is with both requests," said Hamot. "The jury spent a lot of time reviewing the requests. Their finding is a testament to the Virginia judicial system." Costa Brava will also be back in a Baltimore circuit court in the first quarter to face Telos over a lawsuit against that company.
