Jury Awards Rise Against BDO Seidman
“A jury on Tuesday ordered the accounting firm BDO Seidman to pay more than $351 million in punitive damages in a negligence case, bringing BDO’s potential liability in the case to roughly $521 million, an amount the chief executive said threatens its operations.
The Florida jury had found BDO negligent for failing to find extensive fraud in its audits of a financial services company backed by a Portuguese bank. The amount will be added to the same jury’s award of $170 million in compensation to the bank, Banco Espírito Santo.”
““The big problem is a single case can bring down a big firm,” University of Georgia Professor Dennis Beresford said. Firms such as BDO Seidman typically distribute most of their profit to partners each year, leaving little in reserve for large legal judgments, said Beresford, a former chairman of the Financial Accounting Standards Board. ”
“BDO Seidman, the sixth-largest audit firm in the country, could be crippled by a jury verdict handed down in a Florida court late yesterday. The six-person jury awarded Portuguese bank Banco Espirito Santo $170 million for BDO Seidman’s failure to uncover fraud at E.S. Bankest, a Miami-based receivable factoring firm half-owned by the bank…
In June, a second jury found BDO liable for gross negligence for not finding fraud at Bankest over a five-year period ending in 2003. The audit firm argued that executives at Bankest were responsible for the fraud. Criminal charges were filed against four Bankest executives, with former CEO Hector Orlansky receiving a 20-year jail sentence earlier this month.
Banco Espirito Santo was awarded the full amount of its losses from the fraud, and the jury will now deliberate on punitive damages it intends to award after further witness testimony. The jury has the latitude to award three times compensatory damages—or $510 million. If it chooses to award the maximum amount, it will almost certainly bankrupt the Chicago-based audit firm.”
And it looks like BDO is going to have its finances exposed, as a result of this litigation, whether they like it or not.
“Banco Espirito Santo attorney Steven Thomas questioned Lenner about revenue growth at BDO Seidman since 2004. For the fiscal year ended June 30, BDO Seidman reported revenue of $589 million, up $31 million or 5.6 percent from $558 million the year before, according to a news release on its Web site.
Also Tuesday, Circuit Judge Jose M. Rodriguez refused to seal transcripts and close court proceedings related to BDO Seidman’s finances.
BDO Seidman attorney Adam Cole argued the firm has the right to privacy and protect its tax returns, financial statements and ledgers from public disclosure in the punitive damages phase. Rodriguez did reserve the right to seal specific evidence related to the firm’s finances as the trial continues.”
Something about being an accounting firm based in Chicago. Maybe it’s our water. We all know what happened to Arthur Andersen. And Grant Thornton got a temporary reprieve from Parmalat, but is still facing significant repurcussions from their foray into high finance at Refco, under a former Arthur Andersen partner. Other firms have potential liabilities still to come.
When will the SEC and PCAOB start encouraging all the firms to be more transparent about their ability to continue to weather all of these high payouts? It seems we only hear there’s a problem with covering the liability when the firm is about to go under.