In what has to be the bonehead move of the year, several public companies selected BDO Seidman (The US firm) as their new auditor this year, even though it has been under a cloud regarding the Banco Espirito Santo case since it was filed in 2004.
In March, a mistrial was declared because plaintiff attorneys, while questioning a witness, referred to the suicide of a BDO executive in 2003. The death reportedly took place shortly after a $220 million fraud was discovered at a BDO audit client, financial-services firm E.S. Bankest.
On June 15, following a two-month trial, a Florida jury found that the accounting firm had committed gross negligence. Under Florida law, Banco Espirito Santo was able to pursue punitive damages of as much as $510 million. “A judgment of that size certainly would have a severe impact on any firm,” a BDO spokesman told CFO.com at the time.
On Tuesday of this week, the jury awarded Banco Espirito Santo the full treble damages, bringing the potential penalty for BDO to US $521.7 million dollars.
So what in the world would possess the following companies to switch to BDO, especially after June 15?
In particular why would a company switch from a Big 4 to BDO during this period? Well, in the case of Vitesse, Saflink and Learning Tree, it is for the worst reasons… They were subject to restatements, delistings, and other unpleasant revelations delivered by their former big firm auditors and so BDO, the next-tier, scooped up some troublesome, high risk clients.
Is that what we want? The flight from the big firm that’s afraid of the liability from risky clients to the next tier firm that can’t handle the heat?
SIGMATEL INC from:PricewaterhouseCoopers, LLP to BDO when:07/27/07
SGS INTERNATIONAL, INC. from:PricewaterhouseCoopers LLP to BDO when:07/25/07
ADVANCED PHOTONIX INC from:Farber Hass Hurley & McEwen, LLP to BDO when:07/20/07
BUREAU OF NATIONAL AFFAIRS INC from:KPMG LLP to BDO when: 07/11/07
NEOPHARM INC from:KPMG LLP to BDO when:07/06/07
FERMAVIR PHARMACEUTICALS, INC. from:J.H. Cohn LLP to BDO when:07/02/07
SAFLINK CORP from:KPMG LLP to BDO when:06/18/07
CARDIODYNAMICS INTERNATIONAL CORP from:Mayer Hoffman McCann P.C
to BDO when: 06/14/07
VITESSE SEMICONDUCTOR CORP from:KPMG LLP to BDO when:06/06/07
LEARNING TREE INTERNATIONAL INC from:Ernst & Young LLP to BDO when:05/31/07
WESTAFF INC from:Deloitte & Touche, LLP to BDO when:05/24/07
XENOMICS INC from:Lazar Levine & Felix LLP to BDO when:04/11/07
SPARTAN MOTORS INC from:Ernst & Young LLP to BDO when:03/29/07
INSURE.COM, INC from:Ernst & Young LLP to BDO when:03/12/07
XCORPOREAL, INC. from:Amisano Hanson, Chartered Accountants
to BDO when:02/14/07
It wasn’t so long ago that the head of BDO Stoy Hayward, BDO Seidman’s affiliate firm in the UK told the FT in a Letter to the Editor:
“Auditors must be held to account for their actions, but destroying a whole audit network because of shortcomings of others is not the way to ensure confidence in the capital markets in the decades ahead.”