Thursday, December 21, 2006

What's Worse Than One Tax Fraud Trial?

Well, that's easy -- two tax fraud trials!  U.S. District Judge Lewis Kaplan decided to spare himself from having to try a second time the massive tax shelter fraud case with eighteen defendants, sixteen of them former partners and employees of accounting firm KPMG, by rejecting the government's suggestion that the case be divided into separate proceedings, one with the higher-ups and the other with lower-echelon defendants.  After earlier indefinitely postponing the trial, Judge Kaplan has now set a trial date of September 17, 2007, noting at a hearing that "What I've been offered is to have two unmanageable trials instead of one . . . Might as well have one."  Don't hold your breath for that trial date, however, because the appeal of the government and KPMG over the issue of the firm's obligation to pay attorney's fees, and the procedure for doing so, is still before the Second Circuit.  If the appellate court reverses Judge Kaplan's approach, which is to try the attorney's fee issue in a separate proceeding before him rather than send it to arbitration, I expect the defendants to appeal to the Supreme Court.

As discussed in an earlier post (here), if KPMG is not required to pay the attorney's fees soon, the judge could consider dismissing the indictment for prosecutorial misconduct.  The recent revision of the Department of Justice's policy on charging corporations and other business organizations with crimes, now known as the McNulty Memo, rescinds an earlier policy that considered payment of an employee's attorney's fees as a sign of corporate noncooperation.  It will be tough for the federal prosecutors to argue that the did not engage in misconduct when their own policy has gone in the opposite direction. A Reuters story (here) discusses the scheduling hearing before Judge Kaplan. (ph)

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Perhaps as pernicious as the efforts to isolate employees from their employers -- which has more than simply huge economic consequences (consider access to witnesses) -- is the document dumping tactics of prosecutors. In the Skilling/Lay trial an uncountable but estimated several hundred million documents were deposited, the obligation to identify exculpatory documents thereby deemed satisfied, and dammed.

Posted by: Nicholas | Dec 21, 2006 3:24:52 AM

if KPMG is not required to pay the attorney's fees soon . . .

KPMG has no requirement to pay the attorney's fees. if kpmg has any duty it is to make an advancement of fees to the defendants, who would have the legal duty and obligation to repay the fees on conviction.

there is a legal duty on the part of KPMG to decide whether or not to assert certain defenses to the duty--if it exists--to make advance payments. the DOJ's position was that KPMG had to assert those defenses for KPMG's conduct to be consistent with its deferred prosecution agreement.

if there is a change of policy, numerous cases are clear that no criminal defendant has any rights under DOJ's policies, manuals, etc. No court of appeals is going to open that door by accepting the argument advanced

Posted by: Moe Levine | Dec 21, 2006 5:14:32 AM

You write, "It will be tough for the federal prosecutors to argue that the[y] did not engage in misconduct when their own policy has gone in the opposite direction." Have you ever heard of the ban on using evidence of subsequent remedial measures to show prior wrongdoing (FRE 407)? Under your standard, prosecutors would never change their policies, even in ways more in line with your views, for fear that you and defense lawyers would use it as evidence of "misconduct." This is pretty rudimentary stuff, folks, I'm surprised at you.

Posted by: Anonymous | Dec 21, 2006 9:47:22 AM

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