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June 24, 2010

BDO cleared of Banco Espirito damages

BDO US will not have to pay Banco Espirito Santo investors $522 million in punitive damages for failing to detect fraud after a US appeals court overturned the original verdict.

The Florida Third District Court of Appeal determined the Banco Espirito Santo case should be re-tried because the jury could potentialy have been confused due to an unusual three-part trial over four months in the Miami-Dade County Circuit Court.

This means BDO has been cleared of the original punishment and the case will be re-tried at the Miami-Dade County Circuit Court but by a different judge, John Schlesinger, who presided over the related vicarious liability case involving BDO International.

BDO’s attorney Karen Bitar said from now on the case will be tried on a level ‘playing field’.

“All the parties and all the actors are going to have the facts and the story woven together so that the jury can interpret everybody’s conduct vis-à-vis each other. Also, they are not going to have the benefit of a super witness receiver coming in saying a bunch of things that we felt were improper,” she said.

“They also won’t be able to put orders in front of juries that take away from their fact finding function because they say other people made certain determinations and evading the province of the jury. So what will happen now is if that person does ever take the stand again they will be severely curtailed.

Bitar also said if Banco wants to assert the claims of the investors, then all the investors will have to provide evidence that they relied on BDO’s work in their decision making.

She confirmed the ruling also means BDO has been cleared of the punitive damages previously sought because the appeals court considered the damages as excessive for an accounting firm that earns annual revenue of $620 million.

“Based on the unbelievable amount the jury awarded, [the court said] even if it had decided to keep the verdict standing it still would have lowered the amount because the original judge committed an error by not lowering the amount. As based on its net worth, it is much too high for BDO,” Bitar added.

The next step is for Banco’s legal team to ask the appellant court to reconsider their decision, which could drag on for several months. Bitar does not expect a new trial to begin before next year.


In 2007 a jury verdict found BDO, formerly BDO Seidman, as grossly negligent in its audit of ES Bankest between 1998 and 2002, and failed to detect a fraud that led to the bankruptcy of the Miami financial services company. Banco Espirito Santo partly owned Bankest.

BDO was originally ordered by the court to pay $522 million in punitive and compensatory damages following a jury verdict in the Miami-Dade County Circuit Court.

The Court of Appeal also said:

  • The evidence of reliance on BDO’s audit opinions was insufficient to sustain the claims of the Bankest investors, except the one individual who testified at trial; and,
  • The Trial Court improperly allowed into evidence prejudicial hearsay testimony and documents which further served to deprive BDO of a fair trial.

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