Jury Rules Against BDO

by Michael Rappoport - The Wall Street Journal

February 1, 2011 - 

A jury in Florida state court ordered BDO Seidman LLP to pay $91.7 million in damages for fraud and negligence over the accounting firm's auditing of a housing developer that later went bankrupt.

The jury in Circuit Court in Miami assessed $36.7 million in compensatory damages and $55 million in punitive damages against BDO on Monday in a lawsuit brought by the estate of philanthropist George Batchelor and the Batchelor Foundation

BDO said in a statement that it "strongly" disagrees with the jury's verdict, and is confident it will be overturned on appeal.

Mr. Batchelor and his foundation had invested tens of millions of dollars in Grand Court Lifestyles Inc., a BDO client that filed for Chapter 11 bankruptcy protection in 2000. The plaintiffs charged that BDO's auditing didn't bring the company's financial problems to light, and that Grand Court hired BDO in 1998 after going "opinion shopping" for an auditor who was willing to go easy on it.

In a Securities and Exchange Commission filing disclosing the change in auditors, Grand Court said it didn't consult with BDO before hiring the firm about the type of opinion it might render about the company's financial statements. Steven Thomas, an attorney for the plaintiffs, said such consultations did happen.

Grand Court wanted an auditor "not to look so close," Mr. Thomas said. "BDO wanted the business, BDO said OK." The jury found that BDO fraudulently concealed facts and negligently failed to disclose facts in connection with that filing.

BDO said Mr. Batchelor and his foundation made most of their investments in Grand Court before BDO issued its audit of the company. The firm also said that in a sworn deposition before his death in 2002, Mr. Batchelor didn't mention BDO among those on whom he relied in deciding to invest in Grand Court.

But Mr. Thomas said most of the Batchelor investments came after Grand Court hired BDO, several months before BDO's audit of the company was issued.

Last year, a Florida appeals court threw out a $521 million jury verdict against BDO in a separate, unrelated case in which Mr. Thomas also represented the plaintiff. In that case, a lower-court jury had ruled that BDO was negligent for failing to detect fraud at a financial-services company that was its client, but an appeals court overturned the judgment and ordered a new trial, citing errors in the handling of the case.

Write to Michael Rapoport at Michael.Rapoport@dowjones.com