Monday, February 26, 2007

KPMG - Guest Posting - Part III

Professor J. Kelly Strader (Southwestern) - Guest Blogging - KPMG PART III -

KPMG produced two of the most interesting white collar crime decisions of 2006. In addition to the attorneys’ fees holding discussed in the last entry, Judge Kaplan issued another groundbreaking decision ("Stein II, discussed here). The holding had two essential components. First, the judge held that certain KPMG employees had been coerced into given statements to the government, in violation of their Fifth Amendment right not to be witnesses against themselves. Some defendants had met with the government and made "proffers," statements given with the agreement that they could not be used by the government in its case in chief, but could be used on cross examination and could be used to produce leads. The court found that had KPMG had threatened both to withhold payment of the employees’ attorneys’ fees and to fire certain employees if the employees did not cooperate with the government. These threats amounted to economic coercion that rendered the employees’ waivers of their right to remain silent invalid.

Second, the judge held that KPMG made these threats because of government pressure; if KPMG employees did not cooperate – and assertion of the Fifth was deemed failure to cooperate – the firm risked trial. Thus, KPMG was a government actor and its actions violated the Fifth Amendment. Because of that violation, the judge granted the defendants’ motion to suppress certain of their statements.

Unlike Stein I, this was an appealable decision. Both sides and various amici have filed briefs, and the issue is now pending before the Second Circuit. In their briefs, the parties recognize the significance of the issues. For its part, the government asserts that the sky is falling -- that it will never again be able to gain an entity’s cooperation if Judge Kaplan’s decision is allowed to stand. The defendants’ briefs both support Stein II, and further argue (correctly) that the government’s attack on Judge Kaplan’s fact-finding is in effect a backdoor attempt to appeal Stein I.

The legal issues are fascinating, and raise core Fifth Amendment issues of the sort rarely encountered in white collar cases. As to the first holding – that the threatened loss of employment and loss of legal fees amounted to coercion – the defendants are on solid ground – certainly at least with respect to loss of employment.

As to the second holding – that KPMG was a government agent – the law is hardly settled. This is the holding at which the government aims its biggest guns, and deservedly so, for this ruling would hardly be welcome precedent for the government. One interesting note -- as Judge Kaplan observed in Kaplan II, the DOJ takes the position that a person may commit obstruction of justice when that person makes a false statement to private attorneys representing a corporation that is cooperating in a government investigation. In taking the position that corporate counsel in this position are effectively acting as hired help for the DOJ, while at the same time asserting that KPMG was acting completely independently when threatening its employees, the government does seem to be speaking out of both sides of its mouth. (Next time: what does all this mean for white collar litigation?)


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