Lawyers still sorting out the bankruptcy of a Florida financial services company, E.S. Bankest, filed a suit against McGladrey & Pullen for alleged violation of federal securities law and malpractice.
Lawyers speaking for the federal court-appointed E.S. Bankest officer, forensic accountant Lewis B. Freeman, wrote in their filing that the accounting firm hid the truth from investors and lied to the Securities and Exchange Commission about its reasons for resigning as auditor for Stratesec, a company that provided airport and office security services, before filing for bankruptcy protection in April 2004. Bankest was an investor in Stratesec.
Bankest was owned by Espirito Santo Bank and Bankest Capital Corp., both controlled by brothers Hector and Eduardo Orlansky. The U.S. Department of Justice charged the Orlanskys with bank fraud in 2003, and Bankest was forced to declare bankruptcy. The brothers' criminal trial was scheduled to begin in March.
The suit, filed in the U.S. Bankruptcy Court for the Southern District of Florida, seeks unspecified damages and charges McGladrey with two counts of violating federal securities law, and individual counts of malpractice and fraudulent misrepresentation.
According to the filing, McGladrey and Stratesec disagreed over how to account for an acquisition, with McGladrey arguing for treating it as a straight purchase while Stratesec executives threatened to sue McGladrey if the firm did not agree to use a "pooling of interest" treatment. The accounting firm later resigned as auditors, but the lawsuit claims the McGladrey should have publicly voiced that its departure was due to a disagreement over accounting matters.
In February, Bankest filed a $170 million lawsuit against BDO Seidman and two of its CPA partners, blaming them for failing to detect the Orlansky brothers' fraud. Both firms are fighting the charges.
