Jury finds accounting network BDO International not liable in Portuguese bank’s audit lawsuit

BDO International found not liable for bank losses

MIAMI — A Miami jury decided Thursday that global accounting network BDO International B.V. cannot be held liable for audits done by its U.S. member firm that caused $170 million in losses at a Portuguese bank.

The six-person jury deliberated just over an hour before issuing the verdict in Banco Espirito Santo’s lawsuit against Brussels-based BDO International.

The jury rejected the bank’s argument that BDO International managed and controlled U.S. member firm BDO Seidman and bears responsibility for the faulty audits. BDO International insisted its member firms are independent.

“BDO International B.V. is gratified to have this behind them,” said BDO International attorney Mark F. Raymond after the verdict. “It has hung over their head for far too long.”

A 2007 jury verdict still stands finding BDO Seidman liable for the $170 million in bank losses plus $351 million in punitive damages. That verdict is on appeal, but now BDO International is off the hook.

Espirito Santo attorney Steven Thomas said the bank may also appeal Thursday’s verdict. He said the evidence is strong illustrating Brussels-based BDO International’s grasp over members, including contracts, audit manuals its member firms are required to use, worldwide training programs and control of such things as the design of the BDO brand, he said.

“They had the right to decide if BDO Seidman even exists as BDO,” Thomas said in closing arguments. “They admitted this right of control, right in their annual report. They want the strong brand because that’s how they make money.”

But Raymond said the evidence showed the opposite: that the member firms held all the power and the international entity existed solely for such administrative functions as coordinating meetings, distributing auditing manuals and handling a membership directory.

“My client never sought to be the boss, never became the boss and didn’t have the right to be the boss,” Raymond told the jury.

A trial in 2007 resulted in a $521 million negligence verdict against BDO Seidman, which claimed such a large damage award would bankrupt the company. BDO International, the world’s fifth-largest accounting network, was excluded from that first trial, but an appeals court ruled that a jury should decide if BDO Seidman was an agent of the international entity or operated independently.

BDO International also won a key legal battle earlier this week when Miami-Dade Circuit Judge John Schlesinger ruled it could not be held liable for $351 million in punitive damages as part of that earlier verdict, even if the jury had found it liable for the audits.

BDO International in 2008 reported combined fee income of $5.1 billion from its member firms in 110 countries, which employ some 44,000 people.

The audits from 1998 through 2002 involved a now-defunct Miami company called E.S. Bankest, which was financed by the Portuguese bank. The company was in a business called “factoring,” in which it purchased the accounts receivable of various companies for less than they are worth and then resold them at a higher amount. The factoring firm keeps the difference as profit.

E.S. Bankest was exposed as a huge fraud, with several of its executives sent to federal prison and the company shut down by regulators in 2003. Banco Espirito Santo’s lawsuit blamed BDO Seidman auditors for negligently failing to find evidence of the fraud in several audits.

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