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Legal issues

Practice Management

Small Business Compliance with Current Labor Laws

Labor Day pays tribute to the American worker. What better time to remind employers that compliance with all labor laws promotes the spirit of hard work and enterprise and is not only well-warranted but can help prevent expensive penalties. Companies that do not keep current with constant changes to federal, state and OSHA labor law postings risk being cited for non-compliance, says Fiducial, an international provider of professional business services to small businesses and individuals.

Ebbers Out on Bail Pending Appeal; Ohio Settles for $94 Million

Bernard J. Ebbers did not go straight to jail despite being convicted on nine felony counts and sentenced to 25 year in prison. On Wednesday, U.S. District Judge Barbara S. Jones granted a defense request, delaying his entry into prison by at least six months.In her four-page order, Judge Jones found that Ebbers was unlikely to flee before his appeal and that the issue raised by his defense team was substantial and could lead to a reversal of the conviction or a new trial. Oral arguments in the appeal case could be heard by the U.S.
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Indian Trust Fund Scandal Points to Decades of Poor Accounting

Thousands of American Indians are still waiting for the federal government to account for billion of dollars held in trust in what is the largest and longest-running class-action lawsuit against the government.Advertisement
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KPMG Settles with Justice Department and IRS -- Eight Ex-Partners Indicted

KPMG agreed to pay a $456 million fine and admitted in U.S. District Court in New York on Monday that it sold fraudulent tax shelters designed to help wealthy clients avoid taxes, the Associated Press reported. Eight former tax partners and a lawyer who provided advice to KPMG were indicted for tax shelter fraud and are due to be arraigned August 31, the AP and Bloomberg News reported.
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More Good News Than Bad for KPMG

KPMG has had their fair share of bad news since becoming the focus of federal prosecutors but there is unofficial word that an agreement will be announced later this week. Better yet, their Big Four competitors have each told their partners should refrain from "poaching" KPMG's clients.The settlement calls for the smallest of the Big Four accounting firms to pay a fine totaling between $300 and $500 million and accept independent oversight of its operations in order to avoid prosecution. In the deferred prosecution, there will also be a yet unstated probationary period.
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KPMG Countersues Ex-Clients

KPMG is getting tough with former clients and even using some federal evidence against them as evidence for their defense. The Big Four accounting firm is still speaking with federal prosecutors concerning their possible indictment for selling overly aggressive tax shelters. Two of those ex-clients are R. Cary McNair and his brother, D. Calhoun. They are the wealthy sons of Robert C. McNair, oilman and owner of the NFL Houston Texans. In December 2000, both brothers sued KPMG in state court on grounds that the accounting firm knowingly sold them sham tax shelters.
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PNC Settlement May Be Near

Some 73,000 PNC Financial Services Group shareholders may soon share in the settlement of their class-action lawsuit against the bank. The shareholder restitution fund already amounts to $156.4 million. The acting trustee of the fund, Louis Fryman, said the fund will not be distributed until and unless U.S. District Judge David S. Cercone approves a not-yet-approved additional $36.6 million bringing the fund total to $193 million.

Two More Banks Settle Enron Claims

J.P. Morgan Chase & Co. and Toronto-Dominion Bank will pay Enron a total of $480 million to settle allegations that they helped the once-mighty energy giant hide debt and inflate earnings.The settlement stems from a lawsuit filed by Enron against 10 banks. The suit contends the banks could have prevented the company's 2001 collapse if they hadn't “aided and abetted fraud,” the Houston Chronicle reported.J.P. Morgan will pay Enron $350 million in cash and drop $660 million in claims against the company.

WorldCom Convictions Handed Down

Bernard Ebbers received 25 years for his part in the largest bankruptcy in U.S. history. He was sentenced in July after a jury of his peers ruled in April that he had engaged in fraud and conspiracy in connection with WorldCom’s $11 billion accounting scandal. It was the largest in U.S. history. WorldCom has since come out of bankruptcy as MCI. Verizon is expected to acquire the company later this year.Other men who helped convict Ebbers have had their sentences passed down recently. Scott Sullivan was WorldCom’s chief financial officer and the big fish after Ebbers.

Banker Pleads Guilty in Tax Shelter Case

Federal prosecutors investigating abusive tax shelters struck a plea agreement with a banker on Thursday in the first criminal charges brought in the case, according to the Washington Post. Domenick DeGiorgio, the former managing director of HVB Group, pleaded guilty to four counts of conspiracy, wire fraud and tax evasion relating to his participation in selling a tax shelter known as BLIPS or Bond Lined Issue Premium Structure, created and marketed by KPMG. DeGiorgio said he knew the tax structure lacked economic justification.

Civil Complaint Against MBIA May Be Close

Federal and state authorities are reviewing a draft civil complaint against bond insurer MBIA Inc., the Wall Street Journal reported Thursday.The newspaper, citing people familiar with the matter, said authorities may file civil fraud charges connected with MBIA's accounting for reinsurance, with a settlement possible in coming weeks.Attorneys in New York Attorney General Eliot Spitzer's office and the Securities and Exchange Commission are reviewing the complaint, the Journal reported.Separately, the U.S.

Spitzer Gains Allies in Fight Against Bank Regulators

New York Attorney General Eliot Spitzer has gained some heavy-weight support in his legal fight against a federal banking regulator's attempt to stop his probe of mortgage-lending practices.Attorneys general in 34 states and the National Association of Realtors have joined Spitzer in seeking dismissal of a case filed by the U.S.

SEC Settles With College Savings Plan

The Securities and Exchange Commission (SEC) has settled a cease-and-desist lawsuit against the Utah Educational Savings Plan Trust (UESP). The UESP administers Utah’s educational savings plan. The settlement resolves the first ever charges against a Section 529 savings plan. The charges stem from an investigation of the plan’s former director, Dale C. Hatch. Flaws were found in the savings plan’s operations and internal accounting controls. Investigators found that the savings plan failed to fully allocate investor gains and losses to investor accounts.

First WorldCom Accountants Sentenced

Two of the lowest ranking officials participating in the conspiracy responsible for the $11 billion fraud that brought down WorldCom were sentenced on Friday, August 5. Three more former WorldCom executives, accounting director Buford Yates, controller David Myers and chief financial officer Scott Sullivan, will be sentenced this week.Betty Vinson, a former mid-level accounting manager at WorldCom, was sentenced to five months in prison to be followed by five months of house arrest.

New Bankruptcy Reform

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 will become law on October 17 In the face of rising bankruptcy filings. Although bankruptcy filings 2.6% for the first quarter of this year, they rose 12% in the second quarter compared to the same period in 2004 according to LexisNexis. The Act’s new certification requirements and restrictive debtor-means tests, means some attorneys are considering not taking these specialized cases after it goes into effect.

Cases Referred in KPMG Case

The investigation and possible prosecution of KPMG has been the focus of a larger investigation by the Department of Justice (DOJ) into abusive tax shelters sold to corporate taxpayers and wealthy individuals by accounting firms, banks, and law firms. There are now signs that DOJ is working toward a decision.DOJ found that KPMG sold four types of overly aggressive tax shelters to over 350 people between 1997 and 2001 that brought in $214 million in fees according to the Senate Subcommittee on Investigations. These shelters cost the Government around $1.4 billion in unpaid taxes.

Whistleblowers Pay a Heavy Price

While whistleblowers are protected under the Sarbanes-Oxley Act, the financial and emotional toll remains alarmingly high.Just ask David Windhauser, the former controller for Trane, the heating and cooling company. He was the first person to receive a U.S. Department of Labor order requiring his former employer to rehire him under Sarbanes-Oxley. He complained in 2003 that managers were committing fraud by recording fake expenses on financial statements. He was fired one month later.
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Court Clarifies How-to Rules on Family Limited Partnerships

In a closely watched estate case, an appeals court has outlined the mistakes made by the family of a deceased Texas millionaire, providing estate planners with sharp guidelines on how to use family limited partnerships.Family limited partnerships are often used to reduce taxes on inheritances and gifts. In this case, the family of Albert Strangi made errors that caused the U.S.
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Harsh Criticism for the Mayo Foundation's Accounting Practices

Court documents pertaining to a suit brought against the Mayo Foundation by a former accounting employee under the False Claims Act and settled in May for $6.5 million, were released Monday to the Rochester, Minnesota, Post-Bulletin, according to the Associated Press. The documents had been under seal until the Post-Bulletin challenged the settlement order, according to the Associated Press.These documents show that federal investigators alleged that the Mayo Clinic had serious problems accounting for research grants, according to the Associated Press.
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KPMG Legal Tactics Result in $30,000 Fine

A California Superior Court judge has sanctioned KPMG for withholding documents in an accounting-malpractice case, ordering the Big Four firm to pay $30,000 to Targus Group International Inc.Orange County Superior Court Judge Geoffrey Glass, in an order issued last Wednesday, said KPMG "deliberately or recklessly withheld or delayed in producing many responsive documents in order to gain unfair advantage.” According to the Associated Press, he added that “the Court warned KPMG-US at least twice about gamesmanship in discovery."The judge also told the jury that they could weigh the be


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