National CPA firm BDO Seidman LLP has been found grossly negligent by a Florida jury for failing to find fraud in an audit that resulted in costing a Portuguese Bank $170 million. The verdict opens up the opportunity for the bank to pursue punitive damages that could exceed $500 million.
The audit in question was of a now-defunct financial services company, E.S. Bankest LLC, located in Miami, Florida. Two former executives of E.S. Bankest are now serving prison terms in connection with the fraud.
The Portuguese bank Banco Espirito Santo SA, a former investor in Bankest, claims BDO Seidman had financial ties to a Bankest partner and negligently failed to detect the fraud. Banco Espirito Santo SA claims it invested in Bankest as a direct result of BDO's audit results of the Florida company.
BDO Seidman has stated that a judgment against the firm of $170 million could cause massive layoffs and put the firm at risk of losing its position of fifth largest U.S. accounting firm.
BDO Seidman has indicated it disagrees with the jury's findings and will appeal the verdict. Attorneys for BDO Seidman argued at trial that management from Bankest presented the accounting firm with false financial statements and fictitious invoices.
The second phase of the trial, in which punitive damages will be determined, begins Monday.
The Miami Herald is reporting that in an e-mailed statement, BDO Seidman said: "We do not agree with the finding that BDO Seidman did not perform its audits in according with [Generally Accepted Auditing Standards] and we are confident that this portion of the verdict will be reversed on appeal."