Judge: America Acted Unconstitutionally in Pressuring KPMG

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The New York Sun

NEW YORK (AP) – A federal judge accused the Justice Department on Tuesday of trying to gain an unfair advantage in white-collar criminal cases by making it tougher for defendants to get a high-priced legal team.

Since at least 2003, federal prosecutors have been warning scandal-plagued companies that the government might consider them “uncooperative” if they pay the legal bills of employees accused of wrongdoing _ a serious threat to a company trying to avoid an indictment.

U.S. District Judge Lewis A. Kaplan ruled Tuesday that federal prosecutors made just such a threat to the accounting firm KPMG in 2004, and as a result, the company cut off legal aid to 16 employees charged with setting up illegal tax shelters.

In a harshly worded opinion, Kaplan said prosecutors had interfered with the defendants’ right to a fair trial.

“Justice is not done when the government uses the threat of indictment … to coerce companies into depriving their present and even former employees of the means of defending themselves against criminal charges in a court of law,” he wrote.

“If those whom the government suspects are culpable in fact are guilty, they should pay the price. But the determination of guilt or innocence must be made fairly _ not in a proceeding in which the government has obtained an unfair advantage long before the trial even has begun.”

A spokeswoman for the U.S. attorney’s office in Manhattan declined to comment on the decision Tuesday.

Previously, prosecutors had insisted they hadn’t intentionally pressured KPMG into any action regarding legal fees. They also said the government would not seek to punish the company if it resumed paying.

Kaplan did not reach a final decision Tuesday on how to remedy things for the KPMG defendants, who are accused of developing questionable tax shelters that allowed some wealthy clients to dodge $2.5 billion in taxes.

He declined a defense motion to immediately dismiss the charges, saying to do so would be extreme.

U.S. law also prevents the judge from ordering the government to pay for the defendants’ legal expenses, so Kaplan suggested that the defendants sue KPMG for the money instead. He ordered a civil docket opened to ease their path if they wish to do so.

It isn’t clear what would happen if KPMG resists paying those bills, which could amount to many hundreds of thousands, or even millions of dollars.

Kaplan would only say in his decision that “the court declines to consider additional relief at this time, although it may do so in the future if KPMG does not, for one reason or another, advance defense costs.”

A spokesman for KPMG, George Ledwith, declined to comment, other than to say that the company was reviewing the opinion.

KPMG LLP has signed a deal admitting its role in the tax shelter scheme. It avoided criminal prosecution by agreeing to pay a $456 million penalty, including $128 million in forfeited fees from sales of the shelters.


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