PracticeAuditBDO International wins $521m court battle

BDO International wins $521m court battle

Florida judge rules the umbrella body for the BDO network did not control member firm BDO Seidman, and is therefore not liable for a $521m damages bill hanging over the US division

BDO International has won a landmark case which spares the umbrella body
having to pay part of a $521m (£316m) damages claim hanging over its US member
firm BDO Seidman.

The decision, handed down by Judge John Schlesinger at the Circuit Court of
Florida will leave global accounting networks breathing a huge sigh of relief.

It was feared an adverse decision would open the floodgates for a glut of
claims against umbrella bodies.

In 2007 member firm BDO Seidman was found guilty of negligence in its audit
of factoring company Bankest after directors created fictitious cheques,
invoices and companies to inflate the value of account receivables to support a
$170m (£120m) fraud.

The US courts said Bankest’s owners Banco Espirito should be paid $351m in
punitive damages on top of a compensatory award of $170m, bringing the total
bill to $521m.

BDO International was dragged back into the dispute when Bankest appealed the
judge’s decision to dismiss the umbrella body from the original case and the
court of appeals ruled that a jury should decide the issue.

BDO International said: ‘This verdict demonstrates that BDO International BV,
today known as BDO Global Coordination does not have an ‘agency’ relationship
with BDO Seidman, LLP.

‘BDO International BV is a small company based in Brussels that provides
administrative services to a global network of independent accounting firms,
known as BDO member firms.’

BDO Seidman still has the damages claim hanging over it, but remained bullish
about getting the courts to reverse the decision:

‘BDO Seidman is pleased that the jury has recognized that no agency
relationship exists between these entities. As we have stated from the outset of
this trial, once BDO Seidman’s current appeal of the original 2007 negligence
verdict is granted, any finding of vicarious liability in this trial would have
been nullified.’

Further reading:

Litigation
fear drives up cost of PI insurance

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