In a high-stakes legal twist shaking the auditing world, the U.S. Supreme Court on Monday refused to hear BDO USA LLP’s appeal in a case the firm warned could create a “dangerous precedent” for public-company auditors. The decision leaves intact a Second Circuit ruling that allows a securities fraud lawsuit against the firm to advance, keeping the accounting heavyweight firmly in the legal spotlight.

Background: A $22 Billion Insurer’s Financial Restatements

The case traces back to AmTrust Financial Services Inc., a New York-based insurer that was forced to issue a series of financial restatements dating back to 2012—moves that sent its stock tumbling. Investors alleged that BDO, which audited AmTrust’s 2013 financials, contributed to the chaos by falsely claiming that its audit complied with the Public Company Accounting Oversight Board’s professional standards.

The investors filed suit in 2020, accusing the firm of securities fraud tied to AmTrust’s misleading financial statements. BDO, in turn, sought the Supreme Court’s intervention to determine whether an auditor’s assurance of compliance with professional standards could itself form the basis of a securities fraud claim.

BDO’s “Dangerous Precedent” Argument

BDO’s petition, filed in May, argued that the Second Circuit’s revised opinion from last year had “adopted an unprecedented per se rule” — effectively declaring that an auditor’s claim of compliance is always material to investors. The firm cautioned that such reasoning could open the floodgates, potentially exposing nearly half of all public company audits to securities fraud litigation.

The firm maintained that it quickly caught and corrected missing audit procedures in the AmTrust review, insisting that the omissions had no impact on the audit’s integrity.

SEC Sanctions Add Fuel to the Fire

The case’s tension deepened when the U.S. Securities and Exchange Commission temporarily barred three former BDO accountants in 2018 from auditing publicly traded companies. The SEC found that the team had issued an AmTrust audit report before completing all required audit work, a move that cast long shadows over BDO’s defense.

Investors Push Back

The plaintiff investors countered that BDO exaggerated the scope of the Second Circuit’s decision. In their Supreme Court response, they argued that the ruling didn’t establish a sweeping rule, but simply found that—based on the case’s facts—BDO had failed to show its statements were immaterial enough to warrant early dismissal.

They also rejected BDO’s warnings of industry-wide fallout, calling them “dire predictions based on a misreading” of the appellate decision.

High Court Silence Speaks Volumes

Without comment, the Supreme Court denied review. Justice Samuel Alito did not participate in the deliberation. The refusal effectively means the securities fraud case will proceed, a move that could have ripple effects throughout the auditing industry as firms reevaluate how they communicate compliance to investors.

Neither BDO nor the investors’ attorneys immediately responded to requests for comment Monday.

Legal Teams

BDO is represented by Paul Hughes, Andrew Lyonsberg, Emmett Witkovsky-Eldred, Timothy Hoeffner, and Jason Gerstein of McDermott Will & Emery LLP.

The investors are represented by Samuel Rudman, Andrew Love, David Rosenfeld, Mark Millkey, William Geddish, and Robert Gerson of Robbins Geller Rudman & Dowd LLP, Jeremy Lieberman of Pomerantz LLP, Thomas McKenna of Gainey McKenna & Egleston, and Kim Miller of Kahn Swick & Foti LLC.