Paul L. Caron

Monday, July 16, 2007

Judge Dismisses Case Against 13 of 16 KMPG Defendants in Tax Shelter Case

United States v. Stein, No. S1 05 Crim. 0888 (S.D.N.Y.  7/14/07):

The government threatened to indict, and thus to destroy, the giant accounting firm, KPMG LLP (“KPMG”). It coerced KPMG to limit and then cut off its payment of the legal fees of KPMG employees. KPMG avoided indictment by yielding to government pressure. Many of its personnel did not. They now await trial, four of them deprived of counsel of their choice and most of the others unable to afford the defenses that they would have presented absent the government’s interference.

This Court previously held that the government’s interference with KPMG’s payment of the legal fees of its employees and former employees violated the employees’ constitutional rights. The government now concedes that thirteen of the sixteen individuals formerly employed by KPMG (the “KPMG Defendants”) are entitled to dismissal, assuming that this Court’s previous ruling correct. But the government does not concede the correctness of that ruling. Accordingly, the Court has reconsidered Stein I carefully in light of the government’s arguments. It remains convinced that the ruling was correct. Indeed, additional evidence not previously considered strongly supports the Court’s decision. The government, however, now has focused for the first time on the specific circumstances of certain of these defendants. The Court concludes that three of the defendants have not established that KPMG would have paid their defense costs even if the government had left KPMG to its own devices. The indictment therefore will be dismissed as to thirteen of the sixteen KPMG Defendants. The case will proceed to trial on the charges against the other three as well as two additional defendants who never were employed by KPMG and whose rights therefore were not violated.

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Tracked on Jul 16, 2007 11:11:53 AM