Case Studies
Up until 2019 Digital Signs (2017) Limited was a high-growth tech company with a focus on extending the reach of the internet out into the public by way of large digital billboards, so that advertisers could reach people that were either not on a device (perhaps because they were driving) or who were making use of pop-up blockers.
The company had proven competency in obtaining resource consents others couldn’t, the supply and install of quality LED screens, they were the pioneer of the $1/ad model (like Google AdWords), and had significant other IP that increased reliability and sales revenue (such as audience demographic reporting).
2019
In October 2019 the Director approached Mr Nick Innes-Jones, Growth Partner, BDO East Tamaki, Auckland to have cash flow forecasts validated for bank lending from BNZ. Nick sighted supplier invoices, sales contracts, and viewed the overall performance of the company to date. He verified the cash flow forecasts and the Bank made the required loan advances.
Nick was so impressed with the business he spontaneously asked the Director, “What are you going to spend [all the money you’re about to make] on”?.
Nick said, “When the business gets EBITDA (earnings before interest, taxes, depreciation and amortization) in the $5m to $15m range I can sell this (either in full or in part if you want to cash-out a bit) for a 17 multiple”.
17 x $5m - $15m values the business (at that time) at $85m - $255m.
The Director asked, “Is the multiple so high due to the passive recurring income”? and Nick said, “Yes” (the usual industry multiple for premium sites is 12-14).
2020
In April 2020 COVID hit and the whole world went into disarray. The Director of Digital Signs approached BNZ for a $2m loan, to be secured against his rental properties, so that all 12 staff could keep their jobs, and the company could use the period of disruption to obtain resource consents for new sites so that they were “all ready to go” when things came right.
Paul Kilmartin, Risk Manager, BNZ met with the Director in the office of BDO and said he was so impressed with the business opportunity (and the way that it was run) that he would lend the business $10m instead of $2m!
When asked why he would give MORE than what was being asked for he said most people do not borrow enough and this way it would virtually guarantee the success of the business.
Not only would Paul lend the business $10m, he was going to invite the Director “into town” to “meet the other guys”, essentially making Digital Signs a poster child of the Bank. Paul only had one condition – he valued the opinion of Andy McKay, BDO Auckland and as long as Andy agreed then it was a done deal. McKay is one of the 9 Service Leaders at BDO (big boss?).
McKay is a Licensed Insolvency Practitioner, and he is the Liquidator that took Dame Jenny Shipley and Mainzeal to the Supreme Court arguing about director liability.
The Director said to Paul that McKay’s review should go OK since Digital Signs were also a BDO client (they were sitting in the East Tamaki office at the time!) – ie SURELY McKay would agree with Innes-Jones and the business would soon have a $10m facility.
Paul said, “Lucky you” (so there was obviously no problem from the Bank’s point of view that BDO ‘rubber stamp’ their own work, as long as the Bank has that stamp?).
(Anyone see a problem yet?!)
Liquidators spend 99% of their time mopping up the mess of failed businesses. How many liquidators do you know that think it will be sunny tomorrow instead of rain!
The Director engaged McKay to do his “review”. Innes-Jones started engaging with him (as ‘Growth Partner’) and everything seemed to be going OK until McKay and Innes-Jones got into a disagreement on how the discount should be handled on the purchase of another closed down billboard network. Innes-Jones said it should be recorded a certain way and McKay said, “No accountant in their right mind would record it that way”! (Paul Moriarty, Forensic Accountant, later said Innes-Jones was correct).
What is supposed to happen when a conflict of interest arises?
Common amongst nearly all professions (lawyers/accountants) – ASK THE CLIENT!
Only a client can give informed consent as to whether one or both should stop acting.
Neither of them asked the Director what to do. Instead McKay told Innes-Jones to ‘back-off’ and ‘keep out of it’ and then proceeded to write a bad and inaccurate report on the venture (Moriarty Report, 3 September 2023).
The BNZ not only refused funding, but withdrew even existing approved funding, resulting in the total failure of the enterprise and the loss of 12 jobs.
The Chartered Accountants Australia and New Zealand have dealt with the complaints against Innes-Jones and McKay and now it is time to seek redress in the High Court.
(NOTE: The formal decision of CAANZ is published on their website)
The Director of Digital Signs says, “If you are a high-growth tech company, with something really special going on, and you are looking for a good accountant to help you capitalize on your efforts, then STAY AWAY from BDO”.
BDO also failed to disclose they were the Registered Office and Business Advisors to the business's largest competitor Lumo Digital.
by Matthew Ord (AccountingWeb)
6th Nov 2025
BDO and a pair of the firm’s former audit engagement partners have been hit with sanctions and hefty fines following admissions of misconduct in relation to an ex-manager who was found to have created fake documents, deleted records and copied e-signatures.
The Financial Reporting Council (FRC) has imposed the sanctions against BDO, John Everingham and Kevin Cook.
This was on the back of formal complaints being made against each of the respondents earlier this year surrounding their conduct in circumstances where Amanda Nightingale, a senior manager at the time, was able to pursue, undetected, what the FRC called a “dishonest course of conduct on numerous audits between 2015 and 2019”.
This included creating false audit evidence, causing auditor’s reports to be issued without approval from the relevant audit engagement partner, and inserting electronic copies of the audit engagement partners’ signatures in auditor’s reports without their approval.
Nightingale was subsequently banned for 20 years and resigned from the firm a day before her hearing was set to take place. As such, it did not proceed.
In total, there were 49 admitted instances of misconduct between 2015 and 2019.
BDO was found not to have sufficiently robust systems and controls in place from 2012 to 2019 to ensure that audit engagement partners diligently conducted and supervised their audits.
“These failures gave rise to circumstances in which misconduct could occur and remain undetected,” said Jamie Symington, deputy executive council at the FRC.
A report detailing the settlement agreement noted that Nightingale’s misconduct, as well as that of Everingham and Cook, was able to occur and remain undetected “because of the circumstances created by failings in BDO’s systems, controls, policies and procedures”.
Following Nightingale’s departure from BDO in December 2019, the firm conducted an “extensive forensic investigation” into her conduct, before remediating and strengthening its systems and controls to try to prevent a reoccurrence.
However, the misconduct was considered to have “very likely” undermined confidence in the standards of conduct in general, of members, member firms and financial reporting, and in the profession generally.
The settlement agreement also called the misconduct in aggregate “extremely serious and continued over a period of years”.
As such, BDO was hit with a financial sanction of £6.5m – reduced to £5.85m after the application of a 10% settlement discount – as well a requirement to take all reasonable steps to repay audit fees to entities in respect of audits where unauthorised auditors’ reports were issued by the firm, where it has not already done so.
It was also struck with a severe reprimand, while a sum of £716,000 must be paid in respect of the entirety of the FRC’s costs in this matter.
Finally, BDO must provide a report to the FRC every six months for a period of two years detailing the results of the firm’s implementation and operating effectiveness of six control enhancements, those being:
The formal complaint against Everingham concerned his conduct while he was a partner at BDO between 2014 and 2019.
He admitted that, during this period, in a pervasive manner, he failed adequately to supervise numerous audits for which he was the RI and “wrongfully abrogated his responsibilities as the RI” to Nightingale.
The complaint added that Everingham’s conduct “fell significantly short of the standards reasonably to be expected of a member and has brought, or is likely to bring, discredit to himself, BDO and the accountancy profession”.
In respect of 10 separate audits over successive years within one group of companies for which he was the RI, Everingham issued auditor’s reports and unqualified audit opinions in circumstances where both “very limited, and insufficient” audit evidence had been obtained by the audit engagement team.
It was also to be inferred that he had performed “no, or very limited and insufficient” review of such audit evidence, if any, that had been obtained.
In relation to 21 audits where Everingham was the RI, and as a result of his failures to discharge his responsibilities for them, Nightingale issued an auditor’s report without his authorisation. In respect of 20 of them, she inserted an electronic copy of what purported to be Everingham’s signature, again without his authorisation.
Everingham “failed to identify that the auditor’s reports had been signed and issued, and in many cases, subsequently filed at Companies House, without his authorisation”.
He has been hit with a financial sanction of £200,000 – increased by 5% to £210,000 to reflect non-cooperation with the investigation – and then reduced to £189,000 after the application of a 10% settlement discount.
Everingham was also given a severe reprimand, as well as a condition that he does not perform any audit work for a period of six years.
The formal complaint against Cook concerned his conduct while he was a partner at BDO between 2015 and 2019.
He admitted that, during this period, in a pervasive manner, he failed to supervise numerous audits for which he was the RI and “wrongfully abrogated his responsibilities” to Nightingale.
Like Everingham, the complaint added that Cook’s conduct “fell significantly short of the standards reasonably to be expected of a member and has brought, or is likely to bring, discredit to himself, BDO and to the accountancy profession”.
In relation to 13 audits where Cook was the RI, and as a result of his failures to discharge his responsibilities for these audits, Nightingale issued an auditor’s report without his authorisation. On all of them, she then inserted an electronic copy of what purported to be Cook’s signature without his authorisation.
Again, like Everingham, Cook “failed to identify that the auditor’s reports had been signed and issued, and in many cases, subsequently filed at Companies House, without his authorisation”.
In respect of 12 of the 13 audits, Nightingale also issued the unauthorised auditor’s reports where appropriate audit work had not been performed and sufficient audit evidence had not been obtained, with no audit file actually having been created for 11 of them.
As such, Cook has been hit with a financial sanction of £100,000, reduced to £90,000 after the application of a 10% settlement discount.
He was also given a severe reprimand, with a condition also imposed that Cook does not perform any audit work for a period of three years.
Symington stressed that both Everingham and Cook “adopted a fundamentally flawed approach to this role, which involved a serious abrogation of their responsibilities”.
“The failings admitted by BDO and the two partners enabled the senior manager’s dishonest course of conduct to go undetected over several years, thereby undermining the integrity and quality of numerous audits in the relevant period.
“Even when evidence of the senior manager’s misconduct did emerge, the firm failed to take the steps necessary to investigate it, and to protect their clients. The substantial sanctions imposed reflect the extent to which the serious failings established in this case will undermine confidence in audit and the accountancy profession.”
A BDO spokesperson acknowledged, and apologised for, the “serious mistakes” that were made in the case.
“Our internal controls were not good enough and, as a firm, we did not respond adequately to internal reports that raised or should have raised concerns about the conduct of one of our (now former) audit senior managers in one of our regional offices,” they added.
“None of the individuals who were respondents to the investigation work at BDO any longer.”
Once the leadership team was alerted to Nightingale’s misconduct in 2019, it “took immediate action”. This included self-reporting to the FRC and the Institute of Chartered Accountants in England and Wales (ICAEW), undertaking an extensive forensic investigation, and commencing a remediation programme to improve our systems and controls.
“We have been determined to learn from what happened,” it added.
Symington recognised this, adding: “BDO has since worked to remediate and strengthen relevant systems and controls.”
https://www.cityam.com/bdo-fined-6-5m-after-regulator-slams-it-for-faking-audit-evidence/
by Matthew Ord (AccountingWeb)
15th Jul 2025
BDO has been told to “urgently and robustly reassess” how to improve its audit quality after being found to have fallen “significantly short of expectations” in the Financial Reporting Council’s (FRC) Annual review of audit quality.
The firm’s performance was something of an outlier, with the report finding that there has been a significant improvement in the overall quality of the audits delivered by tier 1 firms this year.
A total of 104 individual audits were reviewed across BDO, Deloitte, EY, Forvis Mazars, KPMG and PwC, with 86% categorised as good or limited improvements required. This was compared to 74% of the 92 audits looked at the year before.
The FRC considers this to be a “significant step forward in audit quality”, with the results forming part of a continued trend of improvement over a five-year period.
Within this year’s inspections, a total of 47 audits of FTSE 350 entities were also reviewed, with the percentage of these requiring no more than limited improvements sitting at 85%, compared to 87% the prior period.
Deloitte, EY, KPMG and PwC were all praised for having “continued to build upon the substantial progress that they have made in audit quality over recent years”.
“There has been steady and consistent improvement in the quality of audits inspected by the FRC at these firms over the past five years,” said the report.
“The assessed quality of audits for these firms is now at a level that is, on average, the highest it has been in this period.”
Not a single audit performed by Deloitte, EY, KPMG or PwC that was inspected by the FRC in 2024/25 required significant improvements.
However, the FRC stressed that while the Big Four are moving in the right direction, they need to “continue to invest in and maintain their strong commitment to audit quality” and not become complacent.
Last year, Forvis Mazars – alongside BDO – was warned by the regulator that if they did not see improvements in 2025, then stronger action might be taken, including using their PIE audit registration powers.
This time round, a much more reassuring picture has been painted.
The percentage of the firm’s audits assessed as requiring no more than limited improvements has more than doubled from 44% to 90% – that being nine out of the 10 inspected. The remaining audit was found to require significant improvements.
“While it is too soon to identify this improvement as a trend, it is an encouraging indication that the actions being taken by the firm are having an impact,” said the FRC. “Continued effort is needed by the firm to ensure lasting improvement.”
In response, Forvis Mazars noted that while it was pleased with the results, it agreed with the FRC that as a standalone metric, they “cannot be relied upon to provide a complete picture of a firm’s audit quality”.
“We will continue to focus our efforts on our firm’s system of quality management (SoQM), and work with the FRC as part of its future of audit supervision strategy,” it added, before expressing disappointment that one audit was found to require significant improvements.
“We recognise that while significant improvements have been made in the past year, we continue to enhance and develop our approach and documentation.”
While improvements are being made elsewhere, BDO has been told that it must do better.
The report recognised the firm’s new leadership team renewing its commitment to, and investment in, audit quality.
“However, there remains much to do, including improving the firm’s system of quality management, as the inspection results at BDO are significantly short of expectations and we continue to identify recurring underlying findings,” said the FRC.
The FRC noted that while removing barriers to change can take time, it expects BDO “to not be complacent and ensure change happens at pace”.
“While the firm continues to work on improving its quality, we will work with it to perform additional activities to assess quality and the rate of improvement and have taken and will continue to take appropriate regulatory measures, given the firm’s strategic importance to the market.”
The percentage of BDO’s audits inspected by the FRC requiring no more than limited improvements was 50%, while four of the 14 that were looked at were found to require significant improvements.
Recurring findings relating to the challenge and testing of estimates and assumptions were found, as well as the audit of revenue and quality control procedures.
Findings in other areas – including audit planning procedures – were also identified, with BDO told to “urgently reassess how to improve its quality in these areas and take appropriate action”.
BDO recognised that its results in the report “do not meet the consistent high standards we expect on all our engagements and findings continue to recur”.
While the firm said it felt “encouraged by the increase in the number of engagements requiring no more than limited improvements”, it also noted that the amount of engagements requiring significant improvements has deteriorated, stressing: “This is not acceptable to us and as a firm, we are focused on delivering consistency in our audit quality.”
BDO also made reference to its senior changes, having elected a new managing partner and formed a new leadership team in late 2024.
A strategic refresh has since been undertaken, with a key pillar of strategy being “to improve audit quality”.
“Through the strategic refresh we have critically assessed our challenges and the barriers to delivering consistent high-quality audits,” said the firm. “In response, we have adopted a suite of forward-looking, practical initiatives that will affect positive change.
“Pivotal to the success of these initiatives is breaking down behavioural barriers to change and continuing to drive a culture of scepticism and challenge in all our professionals.”
In response to the findings, the FRC has vowed to maintain the number of BDO audits to be inspected at 14 and undertake further targeted follow-up reviews to assess quality and the rate of improvement.
It will also “maintain a level of intensive supervision in relation to the effectiveness of short-term measures taken, the firm’s strategic audit quality transformation and implementation of an effective SoQM, including through additional activities”.
Looking ahead, the report noted that the future of audit in the UK “depends on its ability to attract and retain skilled individuals, adapt to developments in the market, and sustain public confidence in its work”.
“Public trust and confidence must be earned and maintained through the application of professional scepticism, professional judgment, fraud detection and high-quality ethics and values.”
As such, the FRC has been working closely with professional bodies and firms to modernise qualifications and “promote the profession as a career of choice”.
“A multigenerational workforce has diverse expectations – from flexible working to purpose-led careers. Firms must meet these expectations, not only to retain talent but to reflect the society they serve.”
It also recognised that the capacity needs in the future are becoming “less easy to predict because of changes in the profession, such as the use of offshore delivery centres and technology advancements such as AI”, adding that the number of registered audit firms is also declining, while the number of accounting students – including those in audit – maybe plateauing.
“We will continue to monitor the risks to capacity in the market,” said the FRC.
By The Associated Press
Aug. 15, 2007
MIAMI, Aug. 14 (AP) — A jury on Tuesday ordered the accounting firm BDO Seidman to pay more than $351 million in punitive damages in a negligence case, bringing BDO’s potential liability in the case to roughly $521 million, an amount the chief executive said threatens its operations.
The Florida jury had found BDO negligent for failing to find extensive fraud in its audits of a financial services company backed by a Portuguese bank. The amount will be added to the same jury’s award of $170 million in compensation to the bank, Banco Espírito Santo.
In court filings, BDO Seidman had warned a loss of $170 million could led to large layoffs and cause the company to lose its standing as the fifth-largest accounting firm. The jury was barred from issuing damages that could destroy a company.
In testimony on Tuesday, a BDO Seidman lawyer, Adam Cole, asked the company’s chief executive, Jack Weisbaum, if the firm’s financial operations would stay the same if it had to pay punitive damages.
“Probably not,” Mr. Weisbaum said. “It would be very difficult. We certainly wouldn’t look the way we do now.”
After the verdict, Mr. Weisbaum said he was confident the decision would be overturned on appeal.
The jury decided on Monday that BDO Seidman must compensate the bank and provide punitive damages for failing to reveal extensive fraud at the bank’s former partner, E. S. Bankest. The same jury found the accounting firm grossly negligent in June.
BDO Seidman will post a $50 million bond as it appeals. This was the second trial in the dispute, with the first ending in a mistrial in March. The fraud also led to prison time for former E. S. Bankest executives.
E. S. Bankest was engaged in a business called factoring, in which firms buy companies’ accounts receivable for less than the face value, then keep the difference when they collect.
During trial, Banco Espírito Santo said it had formed a partnership with Bankest Capital to form E. S. Bankest in the late 1990s in part because of faulty audits showing that Bankest Capital’s income had nearly tripled from 1995 to 1996.
The bank also relied on later audits from BDO Seidman, which certified audits for E. S. Bankest accounts totaling some $225 million, of which only $5 million represented legitimate income, a Banco Espírito Santo lawyer, Steven Thomas, said.
https://www.nytimes.com/2007/08/15/business/15audit.html#
Tess BennettTechnology reporter
Jun 17, 2025 – 2.21pm
Dubber Corporation is suing its former auditors BDO in the Federal Court, alleging the firm’s negligence contributed to $30 million of company funds being misappropriated by its former chief executive and an associate.
The ASX-listed company, which makes call recording software, stood down chief executive Steven McGovern in February last year after discovering that $30 million, which it believed was being held in a term deposit by third-party trustee Christopher William Legal, had gone missing.
McGovern was sacked as CEO in April 2024 following an internal investigation. At the time the company alleged that McGovern was “likely involved in the unauthorised use of those funds, including for purposes which were not for the company’s benefit”.
Dubber subsequently launched a deeply discounted emergency capital raising supported by tech billionaire Alex Waislitz’s Thorney Technologies, which now owns 22.1 per cent of the company.
The Australian Securities and Investments Commission is also investigating the matter and has obtained a Federal Court order preventing McGovern and Mark Madafferi, the principal of Christopher William Legal, from leaving Australia.
Dubber has recovered approximately $3.4 million of the lost funds, but is now pursuing legal action to try to recoup the remaining $26.6 million. It expects the matter to be heard in court next year.
On Tuesday, Dubber said it had commenced legal action in the Federal Court against BDO alleging the firm was negligent in its audit performance over a three-year period. In a statement to the ASX, Dubber said that BDO had engaged in misleading and deceptive conduct in failing to adequately perform its duties.
Dubber argued that if not for BDO’s conduct, the company “would not have suffered the loss that it did as the known parties would have been unable to misappropriate the funds or otherwise the funds would have been partly or wholly recovered.” Dubber did not name the known parties in its statement.
BDO’s lawyers have denied any liability, Dubber said in its statement, while the accountancy firm said it could not comment on client matters.
The Melbourne-based company appointed a completely new board in the wake of McGovern’s departure, and named Matthew Bellizia as its chief executive in September last year.
Dubber said separate legal proceedings would be filed shortly against the “known parties” who are the subject of its allegations, “and in some cases against their associated professional bodies and insurers”.
A further “major commercial contract claim” is also likely, the company said, without elaborating, and said it would not raise further working capital to fund the lawsuits.
“The new board and management take the shareholders’ funds very seriously. Firstly, we are focused on running the company lean and profitable with a strong focus on growth. And secondly, we will do everything commercially sensible to recover misappropriated company funds,” Bellizia said.
June 26, 2014 • 4:47pm
Accountancy firm BDO Spicers has agreed to pay $18.5 million to settle a legal claim over its audit of failed lender Capital + Merchant Finance.
The money will be the first amount recovered for retail investors owed $167m since the finance company collapsed in 2007.
BDO's settlement follows its agreement earlier this month to pay an undisclosed share of $22m to settle claims relating to the failure of Strategic Finance.
In a statement issued today liquidator Les Currie, Official Assignee, said the deal was a significant milestone.
"It was achieved after rigorous negotiations and consultation. My team of insolvency personnel, experts and legal counsel have all worked diligently to ensure the best possible outcome for the company and its investors," he said.
The agreement represents a full and final settlement of all claims by the liquidator against BDO Spicers over its audits of Capital + Merchant's financial statements for the years to March 2006 and March 2007.
The settlement includes no admission of liability by BDO Spicers.
- Stuff
https://www.stuff.co.nz/business/industries/10203852/Auditor-pays-out-over-finance-firm-lawsuit
2024-07-15
Africa-Press – Botswana. The liquidator of Bluthorn Fund Managers (BFM), Kopanang Thekiso has accused BDO Botswana auditors of breach of contract, which he argues, resulted in the loss of millions.
BDO Botswana which is a partnership of auditors, was reportedly engaged by Bluthorn in 2016 and was subsequently reappointed from 2017 to 2019 to audit BFM.
The embattled Bluthorn group was placed under liquidation in 2021 following a High Court judgment.
Before that the regulatory authority, Non-Bank Financial Institutions Regulatory Authority (NBFIRA) discovered, during its supervisory activities in May 2019, that Bluthorn was not fully compliant with the relevant financial services laws. It was further discovered that Bluthorn had channeled the majority of investor funds into one of its related companies being Prime Employee Benefits.
In a recently filed lawsuit by its liquidator, Thekiso is suing the auditing firm for BFM, which falls under Bluthorn Group.
The auditors are accused of contractual breach by failing to follow audit agreement signed between the parties. “In purporting to perform the 2017, 2018 and 2019 audits, BDO willfully, alternatively grossly negligently, alternatively negligently, breached its obligations under each of the audit agreements,” he said.
He alleged that among other things, BDO failed to conduct the audit in accordance with International Standards on Auditing. According to his affidavit, Thekiso said had they not breached contractual and statutory obligations in conducting the 2017, 2018 and 2019 audits of BFM, BDO would have uncovered the irregularities and statutory breaches. This he said, would have expressed an audit opinion that the 2017, 2018 and 2019 financial statements did not present fairly, in all material respects.
“BDO could have reported the material irregularities and statutory breaches relating to the 2018 and 2019 audit to the relevant authorities,” Thekiso argued.
He stated that as a result of BDO’s breaches, BFM suffered damages in the sum of P182,732, 549 (Botswana Pula or USD$12.7m) calculated as that had BDO complied with its contractual and statutory obligations and reported the material irregularities to the relevant authorities, the Regulator or the Registrar of Companies would have taken immediate steps to suspend the business of BFM with immediate effect.
Thekiso further said the Regulator or the Registrar of Companies would have suspended BFM’s license and appointed a statutory manager to take control of BFM to the exclusion of its board of directors, by no later than October 31, 2017.
He also argued that had BDO complied with its contractual and statutory obligations, it would not have been able to solicit or accept any funds from investors after October 31, 2017, thereby precluding it from continuing to misappropriate and/or unlawfully loan out any funds after that date.
Thekiso explained that between November 9, 2017 and December 17, 2019, BFM accepted funds from investors in the sum of P182,732,549 being the quantum of damages suffered by BFM as a result of it breaching its contractual and statutory obligations.
“In the alternative to the above paragraph, as a result of BDO’s breaches of its contractual and statutory obligations, BFM suffered damages arising from the ongoing solicitation of funds in the sum of P180,702,549.
The lawsuit was filed on June 25, 2024 before Justice Omphemetse Motumise of High Court and BDO is due to respond through its attorneys Desai Law Group. Thekiso is represented by Armstrong Attorneys.
https://www.africa-press.net/botswana/all-news/bluthorn-battles-to-recover-losses
Richard Baker & Nick Mckenzie
January 22, 2018 — 12.15am
Leading Australian accounting firm BDO is being sued over an allegedly “misleading and deceptive” independent expert report which supported a proposed merger of tin miner Kasbah Resources Limited with a Canadian-listed company.
Kasbah lodged the writ against the Perth office of BDO Corporate Finance in the West Australian Supreme Court on December 18, claiming erroneous valuation statements used in the report wrongly advised shareholders that the proposed deal was “fair and reasonable” and in their best interest.
Kasbah is a small ASX-listed company with its main tin asset in far-away Morocco and shares trading at 0.015 cents this week.
It has had significant changes at board and executive level and has become increasingly tied to Russian oligarch Vladimir Iorich through his Swiss-based investment house, Pala Investments.
The BDO errors were exposed in a separate report by rival firm Deloitte, which had been commissioned by a small group of rebel Kasbah shareholders who were wary of the proposed 2016 merger with Canadian-listed Asian Mineral Resources.
Pala is a major shareholder in Asian Mineral Resources.
BDO was forced to admit the mistakes and acknowledged that it should have told Kasbah shareholders that the proposed deal was “not fair, but reasonable” had the valuations been accurate.
The discovery of the errors in the BDO report prompted the Federal Court in late 2016 to deny Kasbah’s application to push through its deal with Asian Mineral Resources.
The Australian Securities and Investments Commission last year announced it would be increasing scrutiny of independent expert reports, which play a crucial role in advising boards and shareholders on the merits of takeover or merger offers.
Last week ASIC announced the Melbourne arm of accounting firm HLB Mann Judd had volunteered to vary its financial services licence to exclude it from providing independent expert advice.
The reason for HLB Mann Judd’s action and ASIC’s announcement of it remain unknown.
Perth, meanwhile, is home to many small-cap mining companies, making it a lucrative place for accounting companies such as BDO to provide independent expert reports to boards.
Last February, ASIC’s regional commissioner for WA, Jane Gouvernet joined the Perth office of BDO corporate advisory as an associate director.
Ms Gouvernet has played no role in the Kasbah matter.
The Kasbah writ names BDO Corporate Advisory WA partner and chairman, Sherif Andrawes, and fellow director Adam Myers as having prepared and reviewed the independent expert report.
The writ accuses the pair of failing to meet the terms of BDO’s “Our Commitment to You” policy, which promises work of the highest quality.
Kasbah paid BDO more than $50,000 to produce the independent expert report. It is seeking damages for breach of contract and costs.
Mr Iorich’s Pala Investments was previously a target of the Australian government’s Project Wickenby investigation into tax evasion.
The Australian Taxation Office accused Pala of avoiding $34 million in taxes associated with its shareholdings in Australian-listed companies. The ATO later dropped its Federal Court action after working with Pala to revise its initial tax assessments.
A BDO spokesman said: "This matter is currently with our lawyers and we are unable to provide further comment."
BDO settled out of Court for an undisclosed sum 22 May 2019
Author: Tom Lemmon
Date published: June 16, 2020
The BDO partner at the centre of the £250m lawsuit against the firm said in court yesterday that she didn’t question what the claimants’ lawyer called a “shockingly low” valuation of the One Blackfriars site.
The initial valuation given by CBRE Group, a real estate firm, put the site now known as ‘The Boomerang’ at £2.78m, while estate agents Savills had valued the site at £135m. The 52-storey skyscraper development property was eventually sold for £77.4m.
The partner in question, Sarah Rayment, agreed with the claimants’ lawyer, Simon Davenport QC, that there was an “extraordinarily wide” discrepancy between CBRE Group’s valuation and Savills, and that therefore, “somebody had to have got that very wrong”.
In their role as administrators, BDO had to ensure they did not make assumptions about who was right and who was wrong, instead their role was to make inquiries, to “road-test”, Davenport said. Rayment agreed.
But that didn’t happen, Davenport said.
“There’s no emails, there’s no follow-up, there’s nothing to suggest – and you don’t say in your witness statement – that you asked CBRE to explain how they arrived at their extraordinarily low estimate of value, is there? You never asked them, did you?” Davenport said.
“I didn’t, no,” replied Rayment.
The case against BDO centres around the allegation brought by the joint liquidators, working for CVR Global, that BDO agreed to undertake a “light touch” administration on behalf of the syndicate of lenders. The syndicate refers to Royal Bank of Scotland (RBS), Santander UK, and Allied Irish Bank.
The claimants allege the One Blackfriars site was sold at substantially less than it was worth. The site was sold for £77.4m to Berkeley Group, but 18 months later was valued by the property developer at £232m.
The case is expected to last around six weeks.
The High Court subsequently dismissed the claim
In a preliminary report, an examiner appointed by the Texas court overseeing First Brands’ bankruptcy claimed the group was “sustained by fraudulent financing transactions” and quoted witnesses saying BDO could have uncovered accounting irregularities if it had done more work.
And the Reddit community have been quick to get onto it!