BDO Seidman Vs Banco Espirito Case - Trial Begins Tomorrow in Florida Court

BDO Seidman Vs Banco Espirito Case - Trial Begins Tomorrow in Florida Court

In August of 2007, we had blogged about a large $521 million financial judgment against BDO Seidman in its audit of Banco Espirito Santo of Portugal. At that time, we said,

“Banco Espirito Santo claimed it partnered with Bankest Capital to form E.S. Bankest in late 1990s relying on (BDO Seidman's) faulty audits that Bankest Capital's income had nearly tripled from 1995 to 1996. The bank also relied on later audits from BDO Seidman, which certified audits for E.S. Bankest accounts totaling some $225 million, of which only $5 million represented legitimate income.The bank is understandably happy with this verdict, but BDO Seidman will appeal it vigorously, by posting a $50 million bail. As expected, the firm will argue that senior management at Banco Espirito Santo was aware of this fraud and was also complicit.”

Also, we analyzed the relationship between BDO Seidman, the US firm and its global parent, BDO International, which is about 6 times its size:

“BDO Seidman USA is allied with BDO International, which coordinates companies with about 30,000 partners and staff and reported total fee income of $3.91 billion in 2006. In the US, BDO Seidman had revenues of $589 million in 2006, 3,800 employees,. 250 partners and 34 offices.”

See our entire blog post here:

http://bigfouralumni.blogspot.com/2007/08/bdo-seidman-ordered-to-pay-521-million.html

After much legal wrangling, the case has come to court again for a 10-day trial tomorrow at the 11th Judicial Circuit of Florida, Miami-Dade County, before Honorable John Schlesinger. The court is to establish whether BDO Seidman was an agent of BDO International. An earlier trial court had ruled that Banco Espirito's evidence presented could not have established agency, but the Florida Court of Appeal ruled that the plaintiff was entitled to a trial on whether BDO Seidman had acted as the international accounting network's agent.

What’s at stake? Might the international accountancy network be vicariously liable for judgment against its network member BDO Seidman, and in a larger sense potentially liable for the $521 million judgment against BDO Seidman, with consequent financial implications for both plaintiff and defendant?

The question of “agency” and “agent” is a critical issue for all Big Four firms, in that they are in some sense a conglomeration of country partnerships held contractually together under a global firm organization umbrella. Take the case of Satyam Computers, where the Indian government is arguing that PwC India was a unit of PricewaterhouseCoopers global firm and any judgment against the member firm stands against the global firm, which PwC firmly disputes.

More so, if claims against the child firm were transposed to the parent firm, then plaintiffs and juries may well be inclined to levy huge financial penalties which while being considered huge by a child firm, could be small in the scope of the global parent. This could lead to a partial or total rewrite of contractual relationships between parent and child.

If you’re interested in the outcome of this trial, Courtroom View Network’s on-demand offering of the Banco Espirito v BDO International trial is available for purchase on its website, www.courtroomview.com.

We’ll be following as well and report on the proceedings and its ultimate result shortly,