Thursday, December 21, 2006
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)