BDO USA LLP and its parent, the ex- auditors of indicted financier R. Allen Stanford’s former company, were sued for $10.7 billion by investors claiming BDO ignored signs of potential fraud.
“Despite the pervasive fraud that infected Stanford Financial Group’s operations, BDO repeatedly issued unqualified audit opinions on its Stanford client’s annual financial statements,” Edward Snyder, a lawyer for Stanford investors, said in a complaint filed yesterday in federal court in Dallas.
Stanford’s companies “needed BDO’s unqualified audit opinions to satisfy securities regulators and to continue recommending” sales of the allegedly bogus certificates of deposit at Stanford International Bank Ltd. in Antigua, the investors said in the complaint.
U.S. Securities and Exchange Commission regulators seized Stanford’s operations in February 2009 on allegations they were involved in a “massive Ponzi scheme” that defrauded investors of more than $7 billion.
“We have yet to be served with the complaint and therefore are unable to comment at this time,” Jerry Walsh, a spokesman for BDO, said in an e-mail. “However, the fact that this complaint was not filed until now — years after the Stanford fraud came to light and after many other investor complaints were filed — reflects a transparent understanding that the allegations lack merit.”
Stanford, 61, has been incarcerated since June 2009 as a flight risk after he was indicted on parallel criminal fraud charges. He denies the charges and is scheduled for trial in federal court in Houston in September.
In addition to claims that auditors intentionally concealed fraudulent activity, the investors also contend four BDO executives played key roles in a Stanford-sponsored task force that assisted the Antiguan banking authorities in overhauling their banking regulations in the late 1990s, allegedly weakening them in ways that aided Stanford.
The Stanford task force rewrote Antigua’s money-laundering act “to ensure that ‘fraud’ and ‘false accounting’ did not fall under the Act’s prescribed list of violations,” the investors said. After the laws were rewritten in April 1999, the U.S. Treasury Department issued an advisory warning banks to give Antiguan financial transactions “enhanced scrutiny” because of money-laundering concerns, according to the complaint.
The investors also accuse BDO auditors of ignoring signs Stanford’s company was operating as an unregistered hedge fund “illegally disguising itself as a bank.” They claim investors were sold hedge fund shares “disguised as CDs,” and that clients’ cash was pooled by Stanford’s company to make “illiquid, speculative investments” instead of the safe, liquid portfolio promised to clients.
“BDO’s cozy relationship with the Stanford Financial Group was steeped in conflicts of interest and required ongoing deception and duplicitous manipulation of the facts to enable the Ponzi scheme to grow exponentially for over a decade,” investors said in the complaint. “The result is the loss of thousands of investors’ life savings.”
The complaint, which seeks to represent all Stanford investors, was filed on behalf of three Texans who lost more than $3.2 million on certificates of deposit issued by Stanford’s Antiguan bank. They seek $10.7 billion in damages from BDO, which is what they calculate Stanford investors worldwide collectively lost on the Antiguan CDs.
The case is Wilkinson v. BDO USA LLP, 3:11-cv-1115, U.S. District Court, Northern District of Texas (Dallas).
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