Miami Appeals Court Throws Out $522 Million BES Award Against BDO Seidman; Orders New Trial

MR - The $522 million August 2007 Banco Espirito Santo (BES) decision against BDO Seidman has been thrown out in a shocking twist to the 7-year legal battle between BES and BDO. A new trial has been ordered, pending rehearing and appeal of the appellate court's ruling. The original award included $352 million in punitive damages based on BDO Seidman's alleged gross negligence in flawed audits at BES subsidiary, E.S. Bankest, between 1998 and 2002. The audits were found at trial to have concealed a $170 million fraud. The appeals court decision, however, calls the rationale for those findings into question. The trial court's strategic decision to "trifurcate" the proceedings were also a key issue. The appeals court concluded that doing so created a situation where the decision on BDO's liability for gross negligence was decided before the jury even considered other relevant issues that should have been heard and decided simultaneously. It is unclear at this time whether the agency issue is now back in play, or if that element of the case excluding BDO International will stand. The latter point has significant consulting and audit industry implications. What may avert a death sentence for BDO Seidman may ultimately eliminate an important ruling in support of the liability shields of global firm network structures. (Research Note includes full text of decision - 5,835 words) . . . (to read the remainder of this article, please log in below.)