We have just passed the two year anniversary of the landmark $521 million verdict against certified public accountants BDO Seidman LLP in the Banco Espirito Santo case. Gamba & Lombana was co-counsel in the case. The case involved the largest bank fraud in South Florida history at the time, and Enron-like conduct by the fraudsters. For seven years, BDO audited the financial statements of E.S. Bankest LC, and for seven years BDO certified as real $521,689,343 in fake accounts receivables. BDO did so as a result of egregious financial conflicts of interest that violated the strict ethical rules governing certified public accountants and clear Florida law. The total amount of money awarded -- $521,689,343 -- exactly matched the fake accounts receivables BDO certified as real. The Circuit Court found substantial evidence to support the jury's award. The award is now on appeal.

Q. What is important about the verdict against certified public accountants BDO Seidman on its two year anniversary?

The Espirito Santo case demonstrates that auditors are accountable for financial statements that are relied upon by investors and the business community. In this case, BDO Seidman was held accountable for its egregious financial conflicts of interest that helped facilitate the largest bank fraud in South Florida history. It is critical to South Florida investors and businesses, which have been pummeled by big frauds, that certified public accountants who certify these fraudulent financial statements answer for their misconduct.

Q. What were BDO's responsibilities as certified public accountants that are auditing financial statements?

Under Florida law, certified public accountants auditing financial statements like BDO owe a “public watchdog” duty to investors and businesses here in South Florida, and are subject to rigorous ethical standards. The jury found that, while purporting to audit Bankest, BDO willfully violated the ethical rules and certified as real hundreds of millions of dollars in fake accounts receivable of its own business partner and ignored its own employee whistle-blower for financial gain. The jury's verdict holding BDO liable for its gross negligence was correct — indeed, even BDO's lead audit partner admitted on the stand it was his duty to detect the fraud at Bankest.

Q. What do the Madoff, Stanford and other big frauds to hit South Florida mean for the Banco Espirito Santo case moving forward?

The business and financial community will be watching closely to ensure that its interests are protected in the Banco Espirito Santo case. What is at stake is continued business investment in South Florida. As this case progresses, it is critical that BDO be held accountable for the gross negligence which a jury found after five months of trial. Otherwise, businesses and investors will believe that the money they invest in South Florida is not safe. As the ethical rules governing BDO state, “investors [and] the business and financial community . . . rely on the objectivity and integrity of certified public accountants to maintain the orderly functioning of commerce.” It is this “orderly functioning of commerce” that is at stake in the jury's verdict.