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May 31, 2009

BDO International cleared of US firm punitive charges

BDO International has been cleared of
paying $352 million in punitive damages awarded against its US
member firm BDO Seidman in a landmark case in Miami, Florida.

The case is being closely monitored by the
accounting profession as it attempts to establish the legal line of
control between network administration bodies and member firms.

Although cleared of punitive damages, a jury
must now determine whether BDO International should be responsible
for $170 million in compensatory damages also awarded against BDO
Seidman in the same case.

Miami court judge John Schlesinger carved out
the punitive damages of $352 million because the plaintiff, Banco
Espirito Santo, failed to provide sufficient evidence to support
punitive damages.

“I do not believe the facts are in the
neighbourhood of adequacy to support punitive damages against BDO
International,” Schlesinger said.

BDO International, now know as BDO Global
Coordination, commented: “The court correctly ruled that plaintiffs
failed to show BDO International was grossly negligent in the
manner it acted, which is a requirement for punitive damages. We
now look forward to presenting our defence, which will demonstrate
that BDO Seidman is not an agent of BDO International.”

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ES Bankest, a company set up by Banco Espirito
Santo, collapsed in 2003 and its two founders were jailed for a
fraud calculated by investigators at $170 million.

In 2007, a Miami jury found BDO Seidman was
grossly negligent in its ES Bankest audits between 1998 and 2002
and failed to detect a fraud that led to the bankruptcy of the
Miami financial services company. The court ordered the mid-tier
firm to pay $521 million in punitive and compensatory damages, a
ruling BDO Seidman has appealed.

Banco Espirito Santo also pursued BDO
International, claiming the two entities shared an ‘actual common
law agency relationship’. It is this relationship that lawyers will
now thrash out in the Miami court.

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