A jury in Miami has found BDO International not liable for failing to uncover fraud in audits conducted by its U.S. member firm, BDO Seidman.

Plaintiffs suing on behalf of the Portuguese bank Banco Espirito Santo wanted to hold the international network liable for about $520 million in damages awarded almost two years ago against the international accounting network’s U.S. member firm. The case has important implications for the relationship of multinational accounting networks and their member firms in individual countries.

The case involved E.S. Bankest LLC, which went bankrupt and left one of its backers, Banco Espirito Santo, with massive losses. BDO Seidman 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, were convicted of fraud and received jail sentences. BDO Seidman was found liable by a Florida jury in August 2007 for negligence and ordered to pay $170 million in compensation and $350 million in punitive damages (see BDO Loses Miami Audit Case). BDO Seidman is appealing the verdict.

On Monday, a Miami judge ruled that BDO International was not liable for $351 million in punitive damages sought by the bank. He ruled that the bank did not prove the international network was grossly negligent for the audits conducted by the U.S. member firm. The bank’s lawyers contended that BDO International controlled BDO Seidman, but the international network’s attorneys argued that the network did not exercise control.

After the judge’s ruling, the new jury still had to decide whether BDO International was liable for paying part of the $170 million in losses incurred by the bank due to the audits. The jury found on Thursday that BDO Seidman was not an “agent” of BDO International and thus was not liable for the damages awarded in the 2007 verdict against BDO Seidman.

A spokesman for BDO Seidman and BDO International issued two statements on behalf of both entities.

“This verdict demonstrates that BDO International B.V. (today known as BDO Global Coordination B.V.) does not have an ‘agency’ relationship with BDO Seidman, LLP,” said the statement attributed to BDO International. “BDO International B.V. is a small company based in Brussels that provides administrative services to a global network of independent accounting firms, known as BDO member firms. Each member firm is a separate legal entity in its own country and independently owned and operated. BDO International B.V. consists of a handful of employees that serve at the pleasure of the member firms of the network. It has no client involvement.”

The statement from BDO Seidman said, “BDO Seidman is pleased that the jury has recognized that no agency relationship exists between these entities. As we have stated from the outset of this trial, once BDO Seidman’s current appeal of the original 2007 negligence verdict is granted, any finding of vicarious liability in this trial would have been nullified.”

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