A federal judge here has reportedly denied a request by BDO Seidman LLP to force a group of its former tax shelter clients to arbitrate their complaints out of court, according to a published report.

U.S. District Judge Shira Scheindlin ruled that the Chicago-based firm's contracts with the clients were fraudulent, rendering the contracts' arbitration clauses unenforceable, according to a Wall Street Journal report.

The lawsuit, which was filed last year against BDO and Deutsche Bank AG, reportedly centers on a tax shelter called "Currency Options Bring Reward Alternatives," which was deemed abusive by the Internal Revenue Service.

In a statement responding to the ruling, BDO said, "We respectfully, but firmly, disagree with the court's decision, which relies upon an internal BDO Seidman memo that was already found to be privileged by two other courts."

"The entire controversy thus far has merely focused on whether to arbitrate the dispute or hear it in court. No ruling has touched on the quality or accuracy of the services provided by BDO Seidman," the statement continued. "We plan to defend ourselves vigorously in this lawsuit and will refute the numerous factual inaccuracies contained in the complaint."

According to the WSJ, in her decision, Judge Scheindlin cited "new evidence of the fraudulent nature of BDO's consulting agreements" with tax shelter clients, and noted an April 2000 internal memo by a BDO executive that said that the firm's agreements with clients "have been structured not to make clear exactly what services we were providing in return for our fee."

According to the WSJ report, Judge Scheindlin also denied a motion by BDO and Deutsche Bank to stay proceedings in the case.

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