Thursday, November 16, 2006

KPMG Trial On Hold

One can add delay to the list of inevitables, along with death and taxes, at least when it involves a multi-defendant white collar crime prosecution.  U.S. District Judge Lewis Kaplan postponed indefinitely the trial of sixteen former KPMG partners and employees, along with two other non-KPMG defendants, on conspiracy and tax fraud charges because of delays over resolution of the issue of whether KPMG is liable to pay the attorney's fees of the defendants it once employed.  Judge Kaplan ruled earlier that the government's Thompson Memo violated the defendants' due process rights when prosecutors pressured the firm to deny payment of the attorney's fees (U.S. v. Stein, 435 F.Supp.2d 330 (S.D.N.Y. 2006).  He had set a trial on the right to payment of the fees to begin in October, but that has been postponed by the Second Circuit as it considers the government and KPMG's appeal.

In an opinion delaying the trial (available below), Judge Kaplan states that "[t]he importance of this issue for the prompt and fair resolution of the charges in this case would be difficult to overstate." If the Second Circuit reverses the district court's decision, I suspect the defendants will appeal to the Supreme Court.  Judge Kaplan would delay the trial further in all likelihood, pending the outcome of the certiorari petition, causing even more delay.  In a more ominous message to the government, Judge Kaplan also wrote: "If KPMG is obliged to pay, payment could greatly mitigate the impact of the government’s improper actions. This in turn could diminish the advisability of dismissal or other potentially serious sanctions. If KPMG is not obliged to pay, or if a prompt determination is not feasible, the issue of sanctions could be considered after exhaustion of that possibility." (Emphasis added)  The only party that can be sanctioned directly by the court is the United States, and I think the Judge is clearly hinting that he will consider dismissing the indictment for prosecutorial misconduct, which would trigger yet another round of appeals. 

The government has produced approximately fifteen million pages of documents, including seven million since the discovery cut-off in October, so any hope of a quick trial even after the Second Circuit's decision is faint.  Trial is probably at least a year off, and a 2008 starting date is a definite possibility.  But then, even if it starts, imagine how interesting it will be to listen to testimony about the marketing of tax shelters. (ph)

Download kpmg_trial_delay_opinion_nov_13_2006.pdf

Prosecutions, Tax | Permalink

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