Aug. 14 (Bloomberg) -- BDO Seidman LLP must pay $521.7 million for failing to detect a fraud that led to the collapse of a client company, a jury found, imposing punitive damages the firm's chief executive officer said it couldn't pay.

The Miami state court jury today added $351.7 million in punitive damages to yesterday's award of $170 million for actual damages in a lawsuit brought by a Portuguese bank claiming millions in losses from the destruction of E.S. Bankest LLC.

BDO Chief Executive Officer Jack Weisbaum testified today that his firm ``could not pay punitive damages,'' and a lawyer said BDO would be forced to cut jobs if yesterday's award was increased. Attorney Adam Cole asked the CEO on the stand whether BDO could keep serving clients if forced to pay punitive damages.

``Probably not,'' Weisbaum said. ``It would be very difficult. We certainly wouldn't look the way we do now.'' He said BDO, the seventh-largest U.S. accounting firm, ``could not pay punitive damages.''

Weisbaum said after the verdict that the firm plans to appeal. The company is prepared to put up a $50 million bond as required by state law, Weisbaum said.

``We do have insurance to cover this, but I cannot talk about the amount of the insurance,'' he said.

In his closing arguments to the jury, Steven Thomas, a lawyer for the plaintiff, Banco Espirito Santo SA, Portugal's third-largest bank, urged jurors to award the bank the amount finally reached by today's decision, $521.7 million. That is how much in fake Bankest accounts receivable BDO Seidman certified as real, he said.

`Gratified'

``We're gratified that the jury recognized the importance of the public trust vested in BDO Seidman and their violation of that public trust,'' Thomas said after the verdict. lier, Seidman attorney Arturo Alvarez urged jurors not to add to the money the firm must pay.

``You may not award an amount that would financially destroy the defendant, particularly a defendant who didn't steal the money,'' Alvarez said. ``Here you had thieves that stole the money. We are a victim too, because there is not a single bit of evidence that we knew what was going on.''

Punitive damages would destroy the company and its 2,800 employees, Alvarez said.

``That's not fair and that's not justice,'' he said.

The firm reported July 24 that revenue for the fiscal year ended June 30 increased 6 percent to $589 million, according to its Web site.

`Big Problem'

``The big problem is a single case can bring down a big firm,'' University of Georgia Professor Dennis Beresford said.

Firms such as BDO Seidman typically distribute most of their profit to partners each year, leaving little in reserve for large legal judgments, said Beresford, a former chairman of the Financial Accounting Standards Board.

``The real issue is going to be what happens in the appeal,'' Beresford said.

Banco Espirito sued Seidman in 2004 over losses it suffered when E.S. Bankest collapsed. The bank accused Seidman accountants of approving false financial records at the company.

Banco Espirito in 1998 formed Bankest, a company that bought accounts receivable and collected the debt, as a joint venture with Bankest Capital. The bank loaned Bankest $140 million and offered a $30 million line of credit based on BDO's assurance of its financial health, the bank's lawyers said.

Fake Accounts

Bankest officials faked millions of dollars in accounts receivable to support borrowing, U.S. authorities said. Banco Espirito sold its interest in 2002 for $10 million, Cole said.

After the fraud was uncovered, Bankest went bankrupt. Four executives were convicted of crimes at a trial, and five others pleaded guilty. A former CEO was sentenced to 20 years in prison this month.

BDO Seidman Lawyers denied the firm was to blame for the bank's loss. Banco Espirito had four of its own executives on Bankest's board and shouldn't have relied on audits to spot fraud, the lawyers said.

Seidman's verdict is the latest blow to an accounting industry that saw Arthur Andersen LLP destroyed by criminal charges related to Enron Corp. and KPMG LLP consult bankruptcy lawyers before reaching an agreement to avoid charges over illegal tax shelters. Andersen was once the fifth-largest firm, and KPMG is fourth-largest.

The largest accounting firms were once known as the Big Eight. After mergers and the Arthur Andersen collapse, those in the industry talk of the Big Four: KPMG, PricewaterhouseCoopers LLP, Deloitte & Touche LLP and Ernst & Young LLP.

The case is Banco Espirito Santo International Ltd. v. BDO Seidman LLP, 04-14009-CA-01, 11th Judicial Circuit of Florida (Miami-Dade County).

To contact the reporter on this story: Sophia Pearson in Miami at spearson3@bloomberg.net.

Last Updated: August 14, 2007 20:56 EDT