The decision Friday means that Banco Espirito Santo can pursue punitive damages of up to $510 million in the second phase of the trial, which starts next week.

In a 2004 lawsuit, Banco Espirito Santo accused BDO Seidman of failing to uncover $170 million worth of fraud at a former partner of the bank, E.S. Bankest LLC, beginning in the late 1990s, in part because the firm had financial ties to another Bankest partner.

It was the second trial in the dispute, with the first ending in a mistrial in March.

BDO Seidman said in an e-mailed statement that it will appeal. 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 United States' No. 5 accounting firm.

Steven Thomas, a lawyer for Espirito Santo, said he was pleased with the verdict.

Thomas argued in court that Banco Espirito Santo entered the partnership with Bankest in part because of faulty BDO Seidman audits showing that income had nearly tripled from 1995 to 1996.

At trial, BDO Seidman attorneys said Bankest management provided the accountants with false financial documents and fictitious invoices. They suggested that collusion between Bankest, the bank's executives and others was aimed at covering up fraud and misleading BDO Seidman.

At least seven people, including Bankest directors Eduardo and Hector Orlansky, have already been convicted in federal court of criminal fraud charges and sentenced to prison.