KPMG and its former consulting unit BearingPoint, Inc., agreed to pay $17 million each for their part in a class-action lawsuit stemming from the practice of overbilling clients for travel expenses.
In December, PricewaterhouseCoopers LLP agreed to pay $54.5 million to settle its part in the class-action lawsuit. Also named in the suit are Ernst & Young LLP, and the U.S. branch of Cap Gemini Ernst & Young, a French consulting practice that purchased Ernst & Young's consulting business in 2000, the Wall Street Journal reported.
Like PwC before them, neither KPMG nor BearingPoint acknowledged wrongdoing as they agreed to the combined $34 million settlement. The plaintiffs leading the Texarkana lawsuit are Warmack-Muskogee LP, a former PricewaterhouseCoopers client that operates an Oklahoma shopping mall, and Airis Newark LLC, a former KPMG client based in Atlanta that builds airport facilities, the Journal reported.
The lawsuit, taking place in state court in Texarkana, Arkansas, details the practice of professional-service firms negotiating significant rebates with travel companies and credit card companies, overcharging their clients, and pocketing the difference without revealing the practice. A separate investigation by the U.S. Department of Justice is ongoing.
"We are extremely pleased with the results that we were able to obtain for these clients," Rick Adams, an attorney for the plaintiffs at the Texarkana, Texas, law firm Patton, Haltom, Roberts, McWilliams & Greer LLP, told the Journal. "We intend to continue the lawsuit against Ernst & Young and Cap Gemini."
After BearingPoint’s separation from KPMG in 2000, KPMG continued administering BearingPoint’s client-related travel, but KPMG stopped accepting what are known as "back-end" rebates from travel companies in 2002. The lawsuit was filed in October 2001, the Journal reported.
A BearingPoint spokesman told the Journal that the company was "pleased that an agreement has been reached that is beneficial to all involved, recognizing that it's a liability we inherited for a program we didn't create." He said the company previously had established reserves on its balance sheet in anticipation of a settlement and anticipates "no impact on current or future earnings."
A KPMG spokesman told the Journal: "KPMG considers this settlement a fair and reasonable solution to the litigation. While we firmly believe that the KPMG travel program operated to our clients' substantial benefit and that we would prevail at trial, this settlement will end what promised to be a long and costly litigation."