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BDO USA and its parent, the former auditors of indicted financier R. Allen Stanford’s 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 last week in Dallas federal court.   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 in Antigua, the investors said in the complaint. 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 email. “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 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 Houston federal court 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 Antiguan banking authorities in overhauling their banking regulations in the late 1990s, allegedly weakening them in ways that aided Stanford.   The suit named Jeffrey G. Balmer, a West Palm Beach partner and co-chair of its Florida financial services industry group; Keith Ellenburg, a Miami audit partner and a member of BDO’s financial institutions industry group; Barry E. Hersch, a Miami audit partner and partner-in-charge of BDO’s financial institution clients with domestic and international operations; and Michael Ancona, a New York managing senior associate and member of BDO’s financial institutions consulting group who also served on the Stanford task force.   Rewriting Regulations The Stanford task force rewrote Antigua’s money-laundering act “to ensure that ‘fraud’ and ‘false accounting’ did not fall under the law’s prescribed list of violations,” the investors said. After the laws were rewritten in 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 client 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 by Guy M. Hohmann of Hohmann Taube & Summers in Austin, Texas, on behalf of three Texans who claim they 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. 

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