Friday, October 6, 2006

Where Is the KPMG Trial Headed?

The prosecution of sixteen former KPMG partners and employees, along with an outside lawyer and investment adviser, may be headed for separate trials.  A New York Times story (here) discusses a letter sent to U.S. District Judge Lewis Kaplan by federal  prosecutors suggesting that the case can be divided into two parts, with the higher level partners, including the firm's former number two and its chief financial officer, in one proceeding and the lower-level partners and employees in another.  It is not clear who would go first, and there is certainly a risk to prosecutors in dividing the case along these lines because each group may well point the finger at the other.  The government's suggestion appears to be in response to a continuing line of criticism of the prosecution from Judge Kaplan, who questioned the government's tactics in indicting so many defendants that creates the risk of prejudicial spillover.

KPMG is not a defendant in the case, but it has been dragged into litigation in an ancillary proceeding over whether it must pay the attorney's fees of the defendants who worked for the firm.  Judge Kaplan has been insistent that KPMG appears to be obligated to pay the fees, rejecting claims that the firm decided not to pay any fees independently of pressure by prosecutors through the implementation of the Thompson Memo, which he found to be unconstitutional, or that an arbitration clause governed the dispute.  In a small ray of sunshine for KPMG, the Second Circuit postponed a trial before Judge Kaplan on the attorney's fee issue so that the court can hear the firm's appeal that the arbitration clause requires that the claims proceed in that type of forum rather than as an adjunct to the criminal case.  An New York Law Journal story (here) discusses the Second Circuit's order postponing the attorney's fees trial. (ph)

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