The American Lawyer - February 2008

“word of God” witness who could testify in state court, yet still remain an arm of the federal judiciary as a court-appointed receiver, Cole says. But Espirito Santo’s honeymoon ended in early March after six weeks of testimony, when plaintiffs counsel Dorta, questioning a witness, mistakenly mentioned the suicide of a former BDO executive. Judge Rodriguez found Dorta’s slip prejudicial and granted BDO’s motion for a mistrial. (Dorta remained part of the trial team. “What happened to [Dorta] could have happened to any one of us,” says Thomas.)

The ruling was a blow to morale, so Thomas gathered some trial team members for a getaway to the Florida Keys. The group sat around a table with the Caribbean surf crashing in the background. “It’s my job as leader to keep the others up, but this night I wasn’t doing it,” Thomas says. Then the usu-

ally mild-mannered Forrester banged his fist on the table, and said, “Harder and stronger!” That became the plaintiffs’ mantra. “If you’d been in our trial room anytime during the second trial, you’d see ‘ harder and stronger’ or ‘H/S’ on the board or on binders,” Thomas says. “And [before] my final closing, I went over individually to each member of my team, and everyone said the same thing, ‘Harder and stronger.’ ”

The team spent the next month gearing up for a new trial, which began in April. This time, Thomas and eighth-year S&C associate Emily Alexander would handle all the witnesses. “Our case was, ‘It was BDO’s job to find the fraud, and when they didn’t, it mattered,’ ” Thomas says. “The second issue was BDO’s conflict of interest [with StrataSys],

and the third was BDO’s public duty [as a certified public accountant].”

“BDO missed an approximately $200 million fraud for repetitive years,” responds Bitar. “But the reason we didn’t catch it was because this was a very sophisticated fraud that included collusion by people throughout [E.S. Bankest] as well as clients on the outside.”

After calling Freeman again, the plaintiffs zeroed in on the BDO audits, trying to show that the accounting firm had ignored signs of fraud. Former E.S. Bankest vice president Carlos Mendez—a government witness in the Orlansky prosecution—testified that E.S. Bankest relied on BDO’s negligence to allow the fraud to grow undetected. The defense attacked Mendez’s credibility by noting that, in the criminal case, Espirito Santo’s lawyers had written to federal district court judge Adalber-to Jordan in support of a reduced sentence for Mendez. (Thomas countered that Mendez’s cooperation agreement with prosecutors could be voided by a perjury conviction.)

The plaintiffs’ chief whistle-blower was former BDO audit manager Ramon Rivera, who testified that during the first audit of E.S. Bankest in 1998, StrataSys chair Parlapiano refused to turn over copies of canceled checks, which Rivera sought as backup for the factored accounts receivable. As E.S. Bankest clients faked sales to pump up their accounts receivable, Thomas explains, it was relatively easy to doctor their own books—but canceled checks from other companies were more difficult to fake. Rivera said that after he complained to a senior BDO auditor, the audit was halted—and when it resumed a few days later, Rivera said, he was instructed not to ask for the backup checks. BDO’s lawyers countered that Rivera eventually signed off on the audit after his concerns were addressed by the audit team; they also called him a disgruntled former employee, noting that he had lost his job at BDO in a restructuring.

Thomas and his team then made the unusual tactical decision of calling BDO’s auditors as hostile witnesses.

To reinforce his argument that BDO’s alliance with StrataSys blinded it to signs of fraud, Thomas wanted the jury to hear from BDO auditers themselves.

Thomas called Sandor Lenner, BDO’s lead audit partner, who testified about BDO’s strategic alliance with StrataSys via Parlapiano. Lenner acknowledged having a closed-door meeting with Parlapiano to address Rivera’s complaint but said he couldn’t remember what was discussed. While Lenner was on the stand, Thomas presented him with a memo he wrote in 2001 that urged his fellow auditors to look for strategic alliances to provide alternative revenue streams. This evidence allowed Thomas to claim that BDO conducted a substandard audit of E.S. Bankest in order