bdo complaint (final draft 115 2018) - trbas.com€¦ · page 1 of 20 in the circuit court of the...

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IN THE CIRCUIT COURT OF THE 17TH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA Case No.

STEVEN M. MARIANO and GUARANTEE INSURANCE GROUP, INC., Plaintiffs, vs. BDO USA, LLP and ERNIE SAUMELL, Defendants. __________________________________________/

COMPLAINT

Plaintiffs, STEVEN M. MARIANO and GUARANTEE INSURANCE GROUP,

INC., sue Defendants, BDO USA, LLP and ERNIE SAUMELL, and allege as follows:

Overview

1. This action arises out of the fraudulent, negligent, and other wrongful conduct by

Defendants BDO USA, LLP and Ernie Saumell in relation to Defendants’ audit work for

Guarantee Insurance Company, Inc., (“GIC”), a Fort Lauderdale-based insurance company owned

by the Plaintiffs, recently determined to be insolvent and placed into liquidation by the Florida

Office of Insurance Regulation (“OIR”) due to accounting practices and methods of operation of

the insurer that were previously blessed and approved by BDO (as well as the OIR) during its prior

annual audits.

2. Despite no material changes in GIC’s methods of operation concerning its statutory

reserves or accounting practices, Defendants did an abrupt about-face during its statutory audit for

2016, challenging previously known and unquestioned practices and endlessly asking for

Filing # 66537193 E-Filed 01/15/2018 02:55:49 PM

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additional documentation and information. Ultimately, it became apparent that Defendants had no

real interest in timely completing the audit for which they were retained and paid. Instead,

Defendants decided to purposely drag their feet and not render any opinion—qualified or

otherwise—on GIC’s financial statements, in an effort to cover up their own malfeasance in prior

audits. BDO knew that this course of action would destroy GIC and cause grave financial injury

to GIC’s owners.

Parties, Jurisdiction, and Venue

3. Plaintiff Steven M. Mariano (“Mariano”) is an individual residing in Broward

County, Florida. Mariano is the majority shareholder of Plaintiff Guarantee Insurance Group, Inc.

4. Plaintiff Guarantee Insurance Group, Inc. (“GIG”) is a corporation organized under

the laws of Florida and has its principal place of business in Florida. GIG is the sole shareholder

of GIC.

5. Defendant BDO USA, LLP (“BDO”) is a foreign limited liability partnership,

registered to conduct business in the State of Florida, actually conducting business in the State of

Florida, and maintaining offices in the State of Florida.

6. Defendant Ernie Saumell (“Saumell”) is an individual, sui juris, residing in Florida

and a partner in BDO’s Miami office.

7. This is an action for damages in which each cause of action exceeds $15,000,

exclusive of attorneys’ fees, interest, and costs. This Court has jurisdiction pursuant to Section

26.012, Florida Statutes.

8. Venue is proper in Broward County, Florida, because the within causes of action

accrued in Broward County and because BDO maintains an office and conducts business in the

State of Florida. Sections 47.011 and 47.051, Florida Statutes. In addition, the economic damage

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caused to Plaintiffs by virtue of Defendants’ conduct as set forth herein occurred in Broward

County, Florida.

Factual Allegations

Mariano, GIG, GIC, and Patriot National

9. GIC is a workers’ compensation insurance company located in Fort Lauderdale,

Florida. Mariano is the majority beneficial-owner of GIC through a holding company called GIG.

10. GIC’s business is closely related to another majority-owned entity of Mariano’s,

Patriot National, Inc. (“Patriot National”). Patriot National is a provider of comprehensive

technology and outsourcing solutions to insurance companies with its headquarters in Fort

Lauderdale, Florida. GIC was Patriot National’s largest customer.

11. Patriot National became a publicly-traded company on January 15, 2015 until its

delisting from the New York Stock Exchange in late November of 2017 as a result of events

directly tied to the misconduct of BDO.

12. On November 27, 2017, because of Defendants’ actions and following a course of

events they set in motion, GIC was liquidated by the Second Judicial Circuit Court in Leon County.

The Florida Department of Financial Services became the court-appointed receiver of GIC.

13. GIG, as the holding company and sole shareholder of GIC, has been significantly

harmed as a direct and proximate result of Defendants’ actions.

14. Additionally, Mariano, as both the majority shareholder of GIG and Patriot

National, has also been significantly damaged as a direct and proximate result of Defendants’

improper actions.

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BDO’s Prior Audits of GIC and Patriot National and BDO’s Conflict of Interest

15. Since 2007, BDO conducted audits of both Patriot National (or its predecessor

entities) as well as GIC. As result, BDO was intimately familiar with the companies’ respective

accounting practices over a ten-year history.

16. Initially, BDO’s audits of GIC followed a normal auditor-client relationship,

working cooperatively, but within each of their respective roles to complete the audit timely.

17. Working in that standard fashion, BDO would issue its annual audit reports in mid-

May each year in sufficient time for GIC to comply with the statutory June 1 filing deadline.

18. In the early years of the BDO-GIC relationship, Thomas W. Hiller was the BDO

partner leading the audit team. After Hiller retired, however, BDO assigned Saumell as the

partner-in-charge to lead the audits beginning with the year end 2014 audit.

19. The Saumell-era was tainted by a major failing by Defendants: they ignored the

conflict of interest inherent in auditing two closely-linked companies -- GIC and Patriot National.

Rather than recognize the inherent conflict and advise Plaintiffs of the need for independent

auditors, Defendants (particularly Saumell) insisted that BDO serve as the auditor for both related

companies. Even worse, Saumell threatened to “pull” prior year’s audits if Patriot and GIC did

not capitulate to demands that BDO serve as the auditor for both companies and that BDO would

be unable to render an opinion on GIC if BDO was not also appointed as the auditor for Patriot

National despite the requirement that auditors remain free of conflicts of interest under standard

promulgated by the Public Company Accounting Oversight Board (“PCAOB”) and the Securities

and Exchange Commission (including the Sarbanes-Oxley Act of 2002).

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The SEC’s Sanctions and Cease-and-Desist Order

20. BDO also failed to disclose to GIC the risks associated with related party

transactions and, in particular, the risks of having BDO audit such transactions.

21. BDO was especially aware of the risks attendant to related party transactions

because it was sanctioned in 2015 by the Securities and Exchange Commission for its review of

precisely those types of transactions. See In the Matter of BDO USA, LLP, File No. 3-16800,

Order Imposing Remedial Sanctions and a Cease-and-Desist Order (September 9, 2015) (“SEC

Order”). Despite discussions in 2015 between GIC and BDO concerning whether BDO would

continue as GIC’s auditor, BDO never disclosed the SEC Order to GIC.

22. The SEC Order found that BDO engaged in “improper professional conduct.”

SEC Order ¶ 1. Among numerous other failings, the SEC Order concluded that BDO “failed to

adequately plan, design, and perform audit procedures necessary to determine . . . the existence

of related party transactions,” and that BDO “ignored red flags of fraud, potential illegal acts by

[its client’s] agents, and unidentified related party transactions.” Id. ¶ 4.

23. The SEC Order imposed numerous remedial sanctions on BDO. SEC Order ¶¶

110-125. In addition, it required BDO to pay $536,000 in disgorgement, $76,000 in prejudgment

interest, and $1,500,000 in civil penalties. Id. at pp. 35-36.

24. Had it known about the SEC Order, GIC would not have continued its relationship

with BDO.

Defendants Convince Mariano and GIC to Rehire Them

25. Starting in 2015, GIC had decided that it did not want to rehire BDO to conduct

its audit. Rather, GIC wanted a separate auditing firm to perform its audit instead of the same

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firm auditing Patriot National. To that end, GIC had obtained a proposal and acceptance from

another well-qualified accounting firm for 2015 and then again for 2016.

26. When GIC first expressed its desire to change auditors for 2015 to Defendants,

they resisted and coerced GIC to retain BDO. Defendants’ message to GIC during this time

was clear. GIC would either benefit from rehiring BDO or it would suffer if it chose not to

rehire BDO. More particularly, according to BDO, if GIC rehired BDO, GIC would benefit

from the continuity of having the same auditor as prior years, which would result in a more

efficient audit process for GIC. If, however, GIC did not rehire BDO, BDO would “pull” its

audit for the year ending 2015 (and perhaps prior years) and would not provide the new auditor

with its work papers in order for the 2016 audit to be completed.

27. Defendants clearly had no plans for a smooth audit process. Instead, they

intended to use it to hide their own gross negligence from prior audits which were beginning

come to light in early 2017. To be sure, GIC’s management and financial practices had not

materially changed from prior years where BDO had given GIC a generally unqualified

opinion on its statutory accounting. BDO was fully aware that if it were not responsible for

GIC’s 2016 audit, the new auditors would discover BDO’s prior errors in prior GIC audits.

Furthermore, Defendants were keenly aware that its refusal to timely issue an audit would

likely destroy GIC and potentially leave their errors undiscovered.

28. As a result of Defendants’ fraudulent inducement and overt threats, GIC had no

option but to agree to allow BDO resume the halted 2016 audit.

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The Wasik Litigation and BDO’s Sudden Auditing Change

29. Defendants’ motivation to fraudulently induce Plaintiffs to allow BDO to remain

in control over the 2016 GIC audit stemmed from a lawsuit involving Patriot National and others

(the “Wasik Litigation”), which was filed in late November 2016. Though based on unproven

allegation, the Wasik Litigation complained of many different management practices of Patriot

National and its affiliated entities, like GIC and GIG, the same practices that BDO had previously

approved during prior audits.

30. Shortly after the Wasik Litigation was filed, Defendants’ attitude toward GIC and

Patriot National abruptly changed. Saumell began showing open hostility toward Mariano despite

his duty to remain impartial. Defendants began endlessly questioning items that had been

addressed without issue in prior years, acting as if they were suddenly new, open issues.

31. Given the prior SEC sanctions and the newly minted allegations in the Wasik

Litigation BDO knew if it again caught the SEC’s attention, the punishment would be more severe

than the over $2 million it paid as a result of the SEC Order (on top of numerous remedial

sanctions).

32. Alarmed at the prospect of being added to the ever-increasing list of defendants in

the Wasik Litigation, BDO, through Saumell, engaged in a pattern of stall tactics. All of the

sudden, BDO took issue with GIC’s bookkeeping procedures that had been investigated and

written off by BDO, including those that were never previously questioned by Florida’s

regulatory authorities. Had BDO acted competently by timely raising concerns in previous audit

years with GIC, GIC would have been in a position to address and, if necessary, rectify any areas

of concern. Instead, due to BDO’s pivot, GIC never had that opportunity.

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33. Saumell, fearful of the exaggerated and unproven Wasik Litigation allegations,

and now concerned about years of BDO potential responsibility in failing to provide proper audit

recommendations, was afraid that such allegations could lead to the uncovering of BDO’s

massive failures and liability.

34. Rather than providing an audit that detailed the improper practices—the proper

procedure upon purported “discovery” of such practices—Saumell purposely avoid completing

the audit timely with the overriding goal of protecting himself and BDO from charges of

wrongdoing. Defendants’ goal was accomplished by the issuance of an untimely and grossly

deficient audit “opinion” on August 4, 2017, despite having spent the prior six months

investigating these issues.

GIC’s Offer to Retain Another Auditor and BDO’s Promise to “Get There”

35. The Defendants’ plan to cover for prior omissions and gross oversights was to cover

itself by retaining control over the audit and delay its time-sensitive issuance. With its plan, BDO

dramatically changed its audit approach and its day-to-day requests of GIC.

36. Given BDO’s sudden change in how it approached the GIC audit and GIC’s

concern that BDO’s approach was inappropriate, GIC proposed to BDO that GIC bring in a new

auditor to replace BDO. In fact, by April 2017, GIC actively explored options for a new auditor,

including Johnson Lambert LLP (“Johnson Lambert”).

37. Within days of informing Saumell that it was considering bringing Johnson

Lambert, Saumell sought to retain control of the audit by repeatedly assuring GIC’s president,

Michael Sluka, “we can get there,” i.e., that GIC would finish the audit for GIC by the critical June

1 deadline.

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38. Beyond promising GIC that they would “get there,” Defendants also prevented GIC

from changing auditing firms by refusing to turn over their work papers to a replacement auditor.

Without Defendants’ work papers, Defendants knew any new auditor would face an impossible

task of completing the audit in a timely manner.

39. If GIC had hired Johnson Lambert in April 2017, and BDO provided its work

papers, Johnson Lambert could have completed the audit by the June 1 deadline.

40. Ultimately, Defendants effectively forced GIC to allow BDO to remain as its

auditor.

41. In addition, Saumell threatened to withdraw GIC’s 2015 audit if GIC retained

another auditor. As Defendants knew, if BDO withdrew GIC’s 2015 audit, state regulatory

authorities would take swift action to shut down GIC. Each time GIC raised the issue of bringing

in another auditor, Saumell threatened to withdraw GIC’s 2015 audit thus imbedding itself in the

audit process and effectively tying GIC’s hands

42. Like BDO’s prior actions, BDO’s insistence that GIC stay with BDO was done for

selfish reasons—protecting itself—not to serve GIC’s auditing needs. BDO’s overriding focus on

protecting its own interests did great harm to GIC’s interests, which it knew would happen.

GIC’s Cooperation with BDO

43. After BDO effectively prevented GIC from hiring a new auditor in the spring of

2017, BDO embarked on its plan of delay. It began flooding GIC with requests for information,

far beyond that requested for prior year’s audits.

44. GIC worked diligently to respond to the never-ending requests for information in

prompt, professional manner. GIC had every incentive to fully respond so that it could be sure to

meet its June 1 filing deadline. Everyone involved knew that missing the June 1 deadline could

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result in state regulatory authorities placing GIC under supervision or receivership. By contrast,

even a timely but qualified audit opinion by BDO would have allowed GIC to stay in business.

45. Illustrative of GIC’s responsiveness, on May 18, 2017, GIC’s Audit Committee

released a special report to address seven different issues raised by BDO. The Audit Committee’s

report demonstrated that none of the issues posed a material concern.

46. Instead of promptly evaluating the Audit Committee’s report, Saumell waited until

May 30, 2017—only two days before the June 1 deadline—to provide feedback on the report. Yet

even in that email, Saumell falsely led GIC to believe that BDO would complete the audit, stating

“[w]e will continue to work with management on the completion of the audit.”

47. No matter how responsive GIC was and how much the information provided

addressed BDO’s purported concerns, BDO continued to delay. In reality, BDO never intended

to complete the GIC audit and timely render an opinion on GIC’s financial statements, and was

merely trying to protect itself by pushing GIC into receivership before BDO’s own wrongdoing

related to prior audits would come to light.

48. Contrary to Saumell’s email just two days before the audit deadline stating “[w]e

will continue to work with management on the completion of the audit,” Defendants failed to

complete the audit by the June 1st deadline. Rather, when the deadline arrived, Saumell claimed

BDO would “need to perform an internal client continuation assessment, the results of which may

be our determination to no longer continue our association with [GIC].”

49. Nonetheless, GIC continued providing BDO with prompt information in response

to additional requests by BDO following the June 1 deadline in the hopes of completing the audit

under an extension. GIC’s Audit Committee undertook the additional expense of retaining the law

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firm of Berger Singerman LLP and the forensic accounting firm Berkowitz Pollack Brant to

conduct an investigation of certain issues raised by BDO.

50. GIC also utilized the highly reputable law firm of Cahill Gordon & Reindel LLP

(“Cahill”) to assist GIC in providing BDO with the information it requested (and at GIC’s own

expense). Cahill made numerous and voluminous productions of documents to BDO as part of a

massive effort to satisfy BDO’s increasingly unrealistic information requests.

51. Yet, GIC’s responses were never satisfactory to BDO in what became a clear

attempt by BDO to “move the goal posts,” with its never-ending and shifting inquiries.

52. Despite the missed audit deadline, GIC was allowed to continue to operate, much

to the Defendants’ surprise. In one telephone conference following the June 1 deadline, Saumell

expressed astonishment that the state regulatory authorities had still done nothing with respect to

GIC. Saumell appeared frustrated that his and BDO’s goal—getting the authorities to take over

GIC (BDO’s own client)—had not yet been achieved.

53. Yet, GIC continued with its efforts to assist BDO to complete the audit out of time.

A new target date of July 11, 2017 was set for completion. Just before the July 11 target date,

however, BDO sent GIC more new requests for information. Yet again, despite GIC and its

counsel promptly replying to those requests, BDO did not complete the audit by the July 11 target

date either.

54. Finally, on August 5, 2017, BDO provided a disclaimer of opinion (signed August

4, 2017). Exhibit “A.” A disclaimer of opinion is not an opinion on GIC’s financial statements at

all. So, after assuring GIC for months that it timely complete the audit and insisting that it do so,

BDO finally indicated that no opinion (not even a qualified opinion) would be forthcoming.

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55. GIC was stunned by BDO’s ultimate disclaimer in lieu of an audit opinion. And it

was not alone. Former BDO partner and lead audit partner on earlier GIC audits expressed his

surprise too when he stated: “[a]ll that was needed was a qualification.” In other words, Hiller

acknowledged that BDO should have issued even a qualified opinion, not disclaimed an opinion.

BDO’s Shocking Admission of Prior Fault

56. Ironically, the purported basis for BDO’s disclaimer highlights exactly what BDO

did wrong in prior years by failing to raise any concerns when GIC could have corrected them. In

fact, all but two of the reasons that BDO states in its Basis for Disclaimer of Opinion were practices

that had occurred in prior years. BDO never flagged those practices as a concern or provided any

recommendation as to these issues until their Disclaimer of Opinion, despite fact that these

practices had been recurring for years. Had BDO timely informed GIC of these concerns, GIC

would have acted upon any recommendations that BDO should have provided in order to address

these concerns going forward.

57. In its attempt to cover its tracks for not previously notifying GIC of any material

concerns, BDO changed its approach for the 2016 audit and required far more of GIC than

professional auditing standards require. For example, in 2015, BDO advised its other audit client,

Patriot National, that the “objective of our financial statement audit was to obtain reasonable—not

absolute—assurance about whether the consolidated financial statements are free from material

misstatements.”

58. However, instead of seeking “reasonable” assurance from GIC, BDO sought

“absolute” assurances from GIC to self-fulfill its intended audit result. BDO purposely applied a

standard that virtually any company would fail—because it wanted GIC to fail all along to prevent

Defendants’ prior misconduct from being exposed.

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59. In addition, the contents of BDO’s disclaimer of opinion were either knowingly

flawed, intentionally vague, or simply wrong.

60. One example concerned GIC’s identification of an income tax recoverable in the

amount of $16.948 million. GIC was permitted pursuant to the National Association of Insurance

Commissioners Statement of Statutory Accounting (SSAP) Principle No. 101 to carry this

receivable as an “admitted” asset on its financials until ninety (90) days after its parent company,

GIG, filed the consolidated income tax return. However, at the time BDO issued its report

(August 5, 2017), GIG had not yet filed its return. BDO even acknowledged that this recoverable

need not be paid by GIG prior to January 15, 2018. Therefore, this clearly valid GIC asset for the

year ending 2016 should never have been reported as an adverse exception by BDO and BDO

should never have been flagged it as a multi-million dollar overstatement of surplus as of

December 31, 2016.

61. Another disputed entry related to an intercompany liability transfer in the amount

of $8.022 million. A GIC liability owed to Patriot Underwriters, Inc. (a wholly owned subsidiary

of Patriot National) was assigned to Guarantee Underwriters, Inc., an affiliate of GIC at

December 31, 2016. Patriot National accepted the assignment and acknowledged such in a

written document. BDO challenged the entry and erroneously reported that it resulted in an

overstatement of capital and surplus on GIC’s financials as of December 31, 2016. GIC clearly

established this to be a valid transfer to Guarantee Underwriters, which obligation did not revert

to GIC until April 2017, when it was recorded as liability at that date, as BDO knew.

62. As further evidence of its intent to harm is own client, BDO set out to

needlessly identify several items it labelled as “uncertainties” in order to disclaim any opinion.

63. It was BDO’s responsibility to indicate whether a financial statement entry

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or management practice was right or wrong. Instead, BDO simply maintained its uncertainty

on several items and claimed that GIC’s management did not convince BDO of their

propriety. This tactic and BDO’s seven months of “investigation” further delayed issuance

of the report. Notably, BDO did not contend that these so-called “uncertainties” violated any

specified standards or were otherwise not supported by any legitimate business purpose.

64. One example occurred when BDO was “unable” to opine on a negotiated

February 2017 capital contribution transaction. Through that transaction, GIC received $30

million in exchange for a long-term exclusivity arrangement with Patriot National (through

GIC’s parent company, GIG). The arrangement enabled GIC to meet its minimum capital

requirements as of year-end 2016 (the deadline for meeting the requirement was February 28,

2017). Again, BDO did not challenge the transaction as being improper or not serving a legitimate

business purpose. Instead, BDO sought to nit-pick non-executory covenant items peripheral to

the transaction in an attempt to manufacture a basis to disclaim an opinion.

65. Another instance of BDO’s “uncertainty” had to do with the valuation of GIC’s

ownership of Patriot National stock as reflected on GIC’s financial statements. BDO claimed GIC

was unable to provide a definitive estimate of “other than temporary impairment” of Patriot

National’s stock value. This technical accounting rule results in a mere reclassification of a loss

recorded as unrealized to a loss deemed to be realized at that point (even though not yet sold)

resulting in no actual change to reported surplus. However, when GIC proposed its best estimate

of a value of the stock, BDO rejected it, but refused to provide an alternative value. The irony is

that, prior to issuance of BDO’s report, there were several viable suitors to purchase Patriot

National. A sale would have not only provided a definitive valuation of Patriot National’s stock,

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it would have ensured a capital infusion to GIC. BDO’s delay and skewed disclaimer, however,

ensured that no sale would occur.

66. If BDO had correctly and in good faith analyzed these issues, and acted consistent

with past practice, there would have been no reason to withhold GIC’s 2016 audit. In fact, there

was no legitimate reason for withholding the 2016 audit.

The OIR Action Concerning GIC

67. The Florida OIR initiated the proceedings that led to GIC being placed first into

supervision on August 18, 2017 and then into receivership on November 27, 2017.

68. The OIR relied heavily on BDO’s findings in placing GIC into supervision and then

receivership. BDO knew this would happen. Indeed, it knew that its mere publication of these

issues in a disclaimer of opinion would force the OIR to act upon them.

69. Absent BDO’s self-preserving actions, the OIR would not have been pressured to

institute the business-debilitating actions on GIC.

70. BDO did not have to issue a clean audit, as even a timely audit raising concerns (a

qualified audit) would have been enough to have avoided the proceedings that led to GIC’s

placement into supervision and ultimately receivership.

Defendants’ Actions Caused Mariano and GIG to Suffer Massive Damages

71. Defendants’ conduct caused Plaintiffs to incur massive damages in the millions of

dollars.

72. As GIC and Patriot’s auditor, Defendants knew of GIG and Mariano’s interests in

GIC, and they knew their conduct would cause Plaintiffs to sustain these damages.

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73. The Defendants’ actions have had a foreseeable ripple effect. With the virtual

collapse of GIC, Patriot National recently reported its intention to enter bankruptcy. As GIC and

Patriot National’s auditor, Defendants knew what impact withholding the GIC audit would have

on Patriot National, and so knew their conduct would cause these damages.

74. Defendants’ actions have other detrimental consequences. Under Florida law,

when an insurance company is deemed insolvent, the officers and directors of that company, who

served during the prior two years, may be barred from serving as an officer or director of another

insurer. Fla. Stat. § 624.4073 (2017). Because of Mariano’s prior role as the Chief Executive

Officer of GIC, he is now potentially barred from ever serving as a director or officer of another

insurer within the state. This amounts to a loss of millions of dollars annually in expected earnings

by Mariano and his life’s work. As experienced auditing professionals, Defendants knew the

professional consequences to Mariano should GIC be placed in receivership, and so knew their

conduct would cause these damages.

75. Plaintiffs have engaged the services of the undersigned counsel and is obligated to

pay reasonable attorneys’ fees and costs in connection with this matter.

76. Plaintiffs are entitled to remuneration of his attorneys’ fees under the wrongful act

doctrine since, as a result of Defendants’ wrongful conduct, Defendants placed Plaintiffs in such

a position to cause them to incur additional litigation expenses necessary to protect their interests.

77. All conditions precedent to the commencement of this action have been performed,

waived, and/or excused.

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COUNT I – FRAUDULENT INDUCEMENT (Mariano and GIG against BDO and Saumell)

Plaintiffs incorporate the allegations contained in paragraphs 1 through 77 as though set

forth in full herein.

78. BDO and Saumell materially misrepresented to Mariano and GIG that they would

complete GIC’s audit for the year ending 2016 and render an opinion on GIC’s financial statements

if rehired by GIC.

79. BDO and Saumell made those misrepresentations with the knowledge that they

were false and with the intent that Mariano and GIG rely upon those misrepresentations.

80. As a result of BDO and Saumell’s misrepresentations and omissions, Mariano and

GIG caused GIC to rehire BDO to conduct GIC’s audit for the year ending 2016.

81. As a direct and proximate result of BDO and Saumell’s misconduct, Mariano and

GIG have been damaged.

WHEREFORE, Plaintiffs, STEVEN M. MARIANO and GUARANTEE INSURANCE

GROUP, INC., demand judgment against Defendants, BDO USA, LLP and ERNIE SAUMELL,

for direct and consequential damages, interest, special damages consisting of attorneys’ fees and

costs under the wrongful act doctrine, litigation costs, and such further relief as may be deemed

appropriate.

COUNT II – BREACH OF FIDUCIARY DUTY (Mariano and GIG against BDO and Saumell)



82. BDO and Saumell undertook to conduct GIC’s 2016 audit.

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83. BDO and Saumell had an accountant-client relationship with GIC under which

BDO and Saumell owed GIC fiduciary duties. GIC placed confidence in BDO and Saumell to act

in GIC’s best interests.

84. Mariano and GIG were intended third-party beneficiaries of that accountant-client

relationship and those fiduciary duties.

85. BDO and Saumell owed a duty to Mariano and GIG to adequately and properly

provide GIC with auditing services, to meet the standard of care attendant to those services, and

to put GIC’s interests first.

86. BDO and Saumell’s breaches of fiduciary duty included, but were not limited to:

a. failing to timely issue an audit opinion;

b. performing auditing services where a conflict of interest existed because BDO was

the “independent” auditor for both GIC and Patriot National;

c. concealing from GIC, Mariano, and GIG that Defendants never intended to timely

render an opinion on GIC’s financial statements;

d. placing their own interests above those of GIC, Mariano, and GIG;

e. certifying prior financial statements despite improper accounting methodologies;

and

f. failing to provide recommendations in prior audits as to proper accounting

practices

87. As a direct and proximate result of BDO and Saumell’s negligence, Mariano and




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appropriate.

COUNT III –PROFESSIONAL MALPRACTICE AND NEGLIGENCE (Mariano and GIG against BDO and Saumell)



88. BDO and Saumell undertook to conduct GIC’s 2016 audit.

89. BDO also undertook to conduct prior GIC audits.

90. BDO and Saumell had an accountant-client relationship with GIC.

91. Mariano and GIG were intended third-party beneficiaries of that accountant-client

relationship.

92. BDO and Saumell owed a duty to Mariano and GIG to adequately and properly

provide GIC with auditing services, to meet the standard of care attendant to those services, and

to put GIC’s interests first.

93. BDO and Saumell’s negligence included, but were not limited to:

a. failing to timely issue an audit opinion;

b. performing auditing services where a conflict of interest existed because BDO was

the “independent” auditor for both GIC and Patriot National;

c. placing their own interests above those of GIC, Mariano, and GIG; and

d. certifying prior financial statements with accounting methodologies which were

later contradicted by Defendants as improper;

e. failing to provide recommendations in prior audits as to accounting practices

which BDO later claimed were improper during its audit for 2016.

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94. As a direct and proximate result of BDO and Saumell’s negligence, Mariano and






appropriate.

DEMAND FOR JURY TRIAL

Plaintiffs hereby demand a trial by jury as to all issues so triable by right.

Date: January 15, 2018 CONRAD & SCHERER, LLP

Counsel for Plaintiffs 633 South Federal Highway, 8th Floor Fort Lauderdale, FL 33301 Telephone: (954) 462-5500 Facsimile: (954) 463-9244 By: /s/ William R. Scherer

WILLIAM R. SCHERER Florida Bar No. 169454 [email protected]

EXHIBIT A

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