A Miami jury has ordered BDO Seidman to pay $351 in punitive damages for
negligence in failing to detect massive fraud in audits of financial services
company, ES Bankest.
The amount brings the firm’s potential liability to about $521m.
According to the firm’s CEO, Jack Weisbaum, the damages award is set to pose
a serious threat to the number five accounting firm’s operations.
The amount is to be added to an earlier $170m compensation award to Banco
Espirito Santo, which backed the financial services firm.
BDO warned in court papers that the award could trigger severe losses and
massive staff redundancies to the firm’s 2800 employees at 34 offices
During the hearing, the BDO’s attorney, Arturo Alvarez, laid the blame for
the accounting errors on ‘thieves’ at Bankest, who defrauded the bank. He said
BDO did not intentionally bungle the audits.
‘We were victims too… we never knew [the fraud] was happening,’ Alvarez
told the court.
When asked if the firm’s financial operations would stay the same if it had
to pay the punitive damages, Weisbaum answered: ‘Probably not.’
However, the bank’s legal counsel suggested that the firm would be able to
handle the payments if its 250 highly paid partners took salary cuts. It emerged
in court that the partners received an average of $500 000 a year.
The bank said it relied on audits from BDO Seidman, which certified audits
for ES Bankest accounts totalling some $225m, of which only $5m represented
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