Goodman & Co., Boston hedge fund each claim victory in lawsuit ruling

The accounting firm Goodman & Co. and a Boston hedge fund each claimed victory Tuesday after a Fairfax County Circuit Court jury found that Norfolk-based Goodman helped a defense contractor breach its fiduciary duties to shareholders.

The jury, however, awarded no damages to the investment fund Costa Brava Partnership III, which argued that Goodman gave its blessing to a client's fraudulent financial statements. Costa Brava sought more than $17 million of damages from Goodman and asked the court to treble the amount to more than $51 million.

The seven-member jury, which delivered its verdict late Monday, found in favor of Goodman on three remaining counts in Costa Brava's complaint. These included allegations that the accounting firm engaged in conspiracy with Northern Virginia defense contractor Telos Corp. and interfered with Telos' contractual relations with investors.

Hobie Andrews, one of Goodman's defense attorneys, greeted the verdict as a favorable outcome, especially at a time when the accounting firm is celebrating its 75th anniversary. The firm, he said, will ask the court to set aside the jury's finding that Goodman aided and abetted Telos in breaching its duties to Costa Brava and other shareholders.

At Goodman, the firm's quality-control partner expressed relief, citing the complex accounting issues that were presented to the jury by some of the witnesses.

"This jury really took their job seriously and paid attention," said Pat Callahan, who was on hand throughout the two-week trial but wasn't called as a witness.

The jury deliberated for almost two and a half days before delivering its verdict.

Goodman has not yet determined the cost of the litigation or how much of it will be covered by insurance, Callahan said. Costa Brava contended that Goodman enabled Telos to evade its responsibility to redeem preferred stock that Costa Brava and other investors owned. Goodman did that by providing a favorable audit opinion of deceptive accounting practices, the hedge fund argued. Telos, a Loudoun County-based provider of defense-related equipment and services, was able to avoid paying millions of dollars owed to its investors, Costa Brava argued in its 2-year-old suit.

"We're quite satisfied with the decision by the jury," said Seth Hamot, the hedge fund's managing partner. "We have stated for several years that Goodman was instrumental in the preparation of Telos' false financial statements for 2004."

"The jury," he said, "saw the facts, reviewed them thoroughly and agreed with us."

Hamot said the absence of any damages in the verdict wasn't important to Costa Brava. The fund, he said, sought a correction in the Telos financial statements, and "we think we got a verdict that supports this."

During the trial, Costa

Brava cited tensions between Telos and its previous auditing firm, Pricewaterhouse-Coopers. When Pricewaterhouse refused to approve certain accounting practices, Telos went shopping for a new auditor and came up with Goodman, Daniel Fetterman, an attorney for Costa Brava, told the jury.

In Goodman's response, Andrews countered that the trial was over a contractual dispute, not accounting issues.

Goodman, which began working with Telos in 2005, ended its audit relationship with the company earlier this year.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com