Saturday, February 24, 2007
Guest Blogging - J. Kelly Strader - Professor of Law, Southwestern Law School
The KMPG Saga, Part 1
I recently gave a talk on the KPMG case at a symposium sponsored by Chapman University School of Law entitled "Miranda at 40: Implications in a Post-Enron, Post 9/11 World," and I thought I would share some of my observations. KPMG has been an extraordinary case, with fascinating legal and strategic issues for both sides. To avoid overloading the reader, I’ve divided my discussion into four parts. I discuss the latest developments in the case, and end with some views on the impact that the Thompson and McNulty Memos have had on complex white collar litigation.
Because the case has been pending for over a year and a half, with no trial in sight, it might be helpful to recap some key facts. KPMG is one of the world’s largest accounting firms. In 2002, the IRS issued summonses to KPMG in connection with its tax shelter practices. In 2003, the Senate held widely-publicized hearings on those practices. The IRS later referred the matter to the Department of Justice for criminal investigation. The grand jury handed down the original indictment in August 2005, and the superseding indictment later that year. (indictment here) ; press releases here & here.
The government has described the case as the largest tax fraud case in United States history, with an alleged two billion dollars of lost tax revenue due to fraudulent tax shelters. The 70-page, 46-count indictment named 19 defendants and included charges of conspiracy, tax evasion, and obstruction of justice. Among the defendants were 16 former partners or employees of KPMG, some of whom were at the highest levels of management.
Under a deferred prosecution agreement, the government also filed an information against firm, with a single tax fraud conspiracy count. (information here) The DPA required that KPMG pay nearly half a billion in fines, restitution, and penalties, and that the firm cooperate fully in the investigation. It is the DPA that has produced most of the notable issues in the case, including some fascinating Fifth and Sixth Amendment-related issues, including issues currently on appeal to the Second Circuit. (Next time: the attorneys’ fees imbroglio.)