Banco Espirito Santo was awarded $170 million for its losses and $351 million in punitive damages for the negligence of accounting firm BDO Seidman. The reason: BDO failed to uncover fraud at a now-defunct financial services firm in which the bank held a stake. Still left to be decided is whether BDO International is on the hook for the $170 million award, too.

Trial under way
In a trial now under way in Miami-Dade Circuit, Banco Espirito Santo had wanted a new jury to hold BDO International responsible for the 2007 award, as well. The bank alleged BDO International was grossly negligent in failing to ensure Chicago-based BDO Seidman performed proper audits of factoring firm E.S. Bankest.

Belgium-based BDO International was part of the earlier trial, but was dismissed from the case after a judge found the bank presented no evidence establishing its claim against BDO International. An appeals court disagreed and ordered that a jury must decide whether BDO International was responsible for ensuring the quality of BDO Seidman's audits.

Bank's contention
The bank contends BDO International manages and controls a network of accounting firms in 110 countries. BDO International counters it is not an accounting firm but a company that coordinates activities for the firms in its network, including BDO Seidman.

On Monday, Miami-Dade Circuit Judge John Schlesinger tossed Banco Espirito Santo's claim because it failed to prove BDO International was grossly negligent.

"There's no evidence that BDO International B.V. had notice of shortcomings in the audits by Seidman nor that they consciously or deliberately undertook to avoid receiving notice of any shortcomings in those audits," Schlesinger said, according to a transcript of the proceedings.

Schlesinger added he could find no proof that BDO International had a legal duty to review BDO Seidman's audit. He issued the ruling at BDO International's request after the bank rested its case.

BDO International, now known as BDO Global Coordination B.V., said in a statement it was pleased with the judge's ruling.

"The court correctly ruled that the plaintiff failed to show that BDO International was grossly negligent in the manner that it acted, which is a requirement for punitive damages," the company said.

Said Steven Thomas, the bank's lawyer: "Because BDO International's conduct was so egregious, we believe the jury should have been given the opportunity to hold BDO International responsible for the punitive damages already awarded."

BDO Seidman audited E.S. Bankest from 1998 to 2002. E.S. Bankest was set up to buycompanies' accounts receivable at a discount, saving the companies the expense of bill collecting. The bills, though, were largely fake.

E.S. Bankest was owned by Banco Espirito Santo and brothers Eduardo and Hector Orlansky. The brothers were sentenced in 2007 to 20 years in federal prison for defrauding the bank.

Question for the Jury
Still left for the jury to decide is whether BDO International should be responsible for the $170 million in losses sustained by the bank because of the fraud. The bank alleges BDO International is liable for the verdict because BDO Seidman is an agent of BDO International. BDO Seidman has appealed the verdict.

On Tuesday, BDO International completed the presentation of its case. Closing arguments in the trial, which started two weeks ago, may happen on Wednesday.