Last Friday, BDO Seidman lost the first phase of an neglicence suit in Miami.
In a verdict that could have severe consequences for BDO Seidman, a Miami jury on Friday decided the world’s fifth largest accounting firm was negligent in failing to detect a massive fraud that cost a Portuguese bank $170 million.
Banco Espirito Santo had sued BDO Seidman in 2004 over the collapse of a financial services firm, E.S. Bankest, that the bank helped start. BDO Seidman was E.S. Bankest’s auditor for seven years.
This first verdict allows Banco Espirito Santo to pursue punitive damages as high $510 million. The second phase of the trial begins this week.
In January, the Wall Street Journal covered the start of the trial in this case, and noted that BDO was bucking the trend of the Big Four to settle high-stakes cases. According to that WSJ article, BDO said that an award of $170 million could “lead it to forgoing its position of one of the top accounting firms in the United States, and to the displacement of thousands of accountants, auditors and staff.” The article quoted BDO’s general counsel, Scott Univer, “We do settle cases. But there are situations where, if we’re accused of fraud or collaboration or misconduct, we have to draw a line. We’ll see you in court.” Prior to this case, BDO had taken six cases to trial in the US during the past 12 years, and won all of them.