KPMG and Sidley Austin Brown & Wood LLP (Sidley Austin), a Chicago law firm, have reached preliminary agreement with a law firm representing hundreds of former clients who participated in tax shelters later determined to be abusive by the Internal Revenue Service, according to Bloomberg.com. KPMG and Sidley Austin will pay $195 million to their former clients, according to the agreement, which is preliminary, and $30 million to the attorneys in the class action lawsuit, Milberg, Weiss Bershad & Schulman LLP.
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U.S. District Court Judge Dennis Cavanaugh must approve the plan and has scheduled a hearing for October 7th, Bloomberg said. Plaintiffs could opt out of the settlement and pursue their own claims against the firm. The Chicago Sun-Times reported that Sidley Austin will likely pay about 20 percent of the total, or $39 million.
KPMG admitted criminal wrongdoing in relation to the shelters in a settlement in August with federal prosecutors that allowed them to avoid criminal prosecution.
Raymond Ruble, formerly an attorney for Sidley Austin, wrote legal opinions supporting the shelters, the Associated Press reports. Ruble, along with eight former KPMG partners, has been indicted by the U. S. Department of Justice in a separate action in connection with the shelter sales.
Sidley Austin, one of Chicago's oldest and largest law firms, merged with New York-based Brown & Wood in 2001, the Chicago Sun-Times reports. Ruble, a partner with Brown & Wood, continued to push tax shelters to wealthy clients after joining Sidley Austin. Ruble was fired by Sidley Austin in 2003. Prosecutors say that âat least a dozenâ more people will be indicted, according to Bloomberg.
Blair Fensterstock, a New York lawyer who represents some former Sidley Austin tax shelter clients told the Sun-Times that the settlement was very small. âIt is a gift to KPMG and Sidley.â The settlement is based on fees paid to KPMG and Sidley Austin, not what clients will eventually owe, including tax payments and penalties.
Court documents show that attorneys representing other former clients of the two firms will oppose the settlement, Bloomberg reports.
KPMG said that the agreement with Milberg Weiss Bershad & Schulman âis consistent with KPMG's policy of putting past tax shelter matters behind us, the Associated Press reported. A Sidley Austin spokesperson declined to comment.