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.