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Trial opens in bank lawsuit against BDO Seidman accounting firm

Trial opens in bank lawsuit against BDO Seidman accounting firm

Accounting firm BDO Seidman LLP failed to find key warning signs that a Florida financial services company was built on massive fraud because of negligence and dishonesty, an attorney said Thursday as a trial opened in a Portuguese bank's lawsuit against the firm.
The bank, Banco Espirito Santo, is suing BDO Seidman in a state court in Miami for $170 million (euro131 million) stemming from the collapse of a former partner of the bank, E.S. Bankest LLC. Seven people, including Bankest directors Eduardo and Hector Orlansky, have already been convicted in federal court of criminal fraud charges and sentenced to prison.
The bank's lawsuit contends that BDO Seidman, hired to audit Bankest's books, failed to find signs of the fraud in the 1990s, in part because the firm had financial ties to another Bankest partner.
"They were dishonest. Over and over again, they didn't do the right thing," Banco Espirito Santo lawyer Steven Thomas told jurors in an opening statement. "When you combine negligence with dishonesty, you get catastrophic loss."
Bankest was engaged in a business called "factoring," in which money is lent to other companies immediately in return for higher payments those companies expect to receive later. Banco Espirito Santo entered the partnership in part because of BDO Seidman audits showing that income had nearly tripled from 1995 to 1996, Thomas said.
"Those numbers were false," he said.
All told, he said, BDO Seidman certified audits for Bankest accounts totaling some $225 million (euro173.5 million), of which only $5 million (euro3.85 million) represented legitimate income. One red flag that was missed: when BDO Seidman mailed out 145 letters one year to companies listed as owning Bankest money, it got no replies and did not follow up, Thomas said.
BDO Seidman's lawyer was scheduled to deliver his opening statement later Thursday. The firm has denied negligence or improper practices in the past and has filed a countersuit against Banco Espirito Santo. The bank was founded in Portugal in 1920, spread to Portuguese-speaking Brazil and bought a Miami-based bank in the early 1980s.
Trial of the bank's lawsuit is expected to last more than six weeks. In court papers, BDO Seidman has warned that a loss of $170 million in the case could trigger massive layoffs and cause the company to lose its position as the nation's No. 5 accounting firm.
BDO Seidman operates 34 offices and has 300 independent, allied firms around the U.S. It is part of BDO International, which has about 30,000 partners and staff and reported total fee income of $3.91 billion (euro3.01 billion) in 2006, according to the firm's web site.


Updated : 2021-06-20 21:32 GMT+08:00