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Legal Ethics

Judge Calls Interference on Prosecutors, Dismisses 13 from KPMG Case

Posted Jul 16, 2007 2:37 PM CDT
By Martha Neil

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Updated: Saying that prosecutors inappropriately interfered with their defense, a federal judge in Manhattan has dismissed charges against 13 of 16 KPMG former employees charged in a tax shelter fraud case.

In a ruling today, U.S. District Judge Lewis A. Kaplan said he had no choice but to dismiss the indictment against the 13, because their constitutional rights were violated due to excessive pressure the government put on KPMG not to pay their defense costs, reports the Wall Street Journal (sub. req.).

"The court has reached this conclusion only after pursuing every alternative short of dismissal and only with the greatest reluctance," Kaplan wrote in his opinion.

Described by the government as the biggest criminal tax case in U.S. history, the prosecution concerns allegedly abusive tax shelters promoted by the Big Four accounting firm that resulted in tax underpayments of some $2.5 billion.

The judge determined in June 2006 that the government had violated the constitutional rights of former employees in the case by threatening to prosecute KPMG if it paid for their defense. He did not determine a remedy, however, until today. Had the government not made this threat, the judge found, KPMG would have paid the defense costs, as it ordinarily does under such circumstances, reports the Associated Press.

KPMG avoided prosecution by agreeing to pay a $456 million fine and cooperate with the prosecution.

(Originally posted 12:38 p.m.)

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