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.”
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.