Thursday, October 16, 2008

KPMG Case Heads to Trial

Another case we have followed closely is that of the government's prosecution of former KPMG executives and an ex-partner at Sidley Austin. The case, which was once billed as the biggest tax-fraud case in U.S. history, began with 19 defendants, but only four remain. Both the New York Times and the Wall Street Journal Law Blog have articles on the case this week.

From the NYT.

Jury selection began on Tuesday in a closely watched tax shelter case once billed as the largest ever, but government prosecutors face a difficult road after a string of defeats in a proceeding that has been scaled back.

The four defendants, including three executives who once worked for the accounting firm KPMG, are set to stand trial on fraud and conspiracy charges. They are accused of creating, selling and sometimes using abusive tax shelters that reduced clients’ tax bills by at least $2.5 billion from the late 1990s to recent years.

Opening arguments in the trial, before Judge Lewis A. Kaplan of Federal District Court in Manhattan, are scheduled to begin Wednesday.

The government wants to present a dozen wealthy taxpayers as witnesses for the prosecution, including Doug Lowry, a former tax executive at CKE Restaurants, which owns the Hardee’s chain, according to court filings, as well as at least two current or former employees of Deutsche Bank, which is under a separate criminal investigation into its work with
tax shelters.

The KPMG case is a shadow of its former self. In 2005, 19 defendants — 17 from KPMG — were indicted on multiple charges of conspiracy, tax evasion and fraud in connection with making and selling questionable shelters to wealthy investors. In 2006, Judge Kaplan threw out charges against 13 of the 19 defendants, saying that prosecutors had violated their constitutional rights by pressing KPMG to stop paying their legal fees. Two of the remaining defendants pleaded guilty.

The dismissal of charges followed an outcry from independent lawyers and prosecutors about the government’s tactics in the case. In August, the Justice Department formally softened the guidelines used in the proceeding, saying it would no longer press companies to share legal secrets with prosecutors or not pay the legal fees of employees accused of crimes.

The three remaining defendants who once worked at KPMG are Robert Pfaff, John Larson and David Greenberg. A fourth defendant, Raymond J. Ruble, was a tax lawyer at the law firm formerly known as Sidley Austin Brown & Wood, now Sidney Austin. The trial is expected to last up to four months...

The trial this week centers on tax shelters deemed abusive by the I.R.S. In recent weeks, defendants have intensified their effort to exclude a core piece of the government’s case: charts that are said to show billions of dollars in tax evasion by some 600 wealthy individuals who bought the shelters.

From the WSJ Law Blog.

The judge, Lewis Kaplan (pictured), found that prosecutors, during their investigation of the firm, violated those defendants’ rights by pressuring KPMG not to pay their legal fees in order to avoid a possible indictment of the firm itself. Earlier this year, the 2nd Circuit agreed, and the Justice Department has twice said it would soften its approach in pursuing corporate crime investigations.

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