Charges dropped against former KPMG execs, appeal filed

Federal indictments have been dropped against 13 KPMG execs accused of orchestrating a tax shelter scheme that cost the government $2.5 billion. Cases are still pending against three former KPMG executives for whom the firm was not required to pay legal fees, Robert Pfaff, John Larson and David Greenberg, and two others who are not affiliated with KMPG. That trial is scheduled for September.

The judge referred to "intolerable" prosecutorial abuses in making his decision, claiming the defendants' rights were violated when prosecutors threatened to indict KPMG if it didn't cut off the payment of legal fees for the defendants who refused to cooperate with the investigation. The judge claimed the prosecutors blocked the defendants from putting on an effective defense.

"[The Justice Department] foreclosed these defendants from presenting the defenses they wished to present and, in some cases, even deprived them of counsel of their choice. Their deliberate interference with the defendants' rights was outrageous and shocking in the constitutional sense because it was fundamentally at odds with two of our most basic constitutional values, the right to counsel and the right to fair criminal proceedings," the judge said in a 64-page opinion. "This is intolerable in a society that holds itself out to the world as a paragon of justice."

"There are limits on the permissible actions of even the best prosecutors," Kaplan wrote. "The responsibility for the dismissal of this indictment . . . lies with the government."

The defendants were accused of knowingly helping clients save billions of dollars in taxes by selling them unlawful tax shelters.

KPMG averted legal action against the firm by agreeing to pay a fine of $456 million and agreeing to cease some of its tax practice.

KPMG has been paying the legal fees for civil actions that have arisen from the tax shelter issues.

Prosecutors have filed an appeal of the decision. In a statement Monday, Southern District U.S. Attorney Michael Garcia said that the government "respectfully disagrees" with Kaplan as to whether there was a constitutional violation in the case.

Related stories

  • Effects of KPMG’s Deferred Prosecution Agreement May Be Felt for Years

  • KPMG Settles with Justice Department and IRS -- Eight Ex-Partners Indicted

  • More Good News Than Bad for KPMG

    You may like these other stories...

    President Obama squeezed under the bar for the highest marginal tax rate on the federal income tax return he recently filed for 2013. But the Commander in Chief, who filed a joint return, couldn't dodge the new 3.8...
    IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
    Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...

    Upcoming CPE Webinars

    Apr 22
    Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
    Apr 24
    In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
    Apr 25
    This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
    Apr 30
    During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.