Former KPMG partners sue for legal fees in tax shelter case
NEW YORK -- Former KPMG LLP partners accused of creating bogus tax shelters are suing the firm for legal fees after a judge ruled that prosecutors wrongly pressured the firm to cut those fees off.
In a civil complaint, the 16 former partners are asking US District Judge Lewis Kaplan in Manhattan to direct KPMG to pay their past and future legal bills in the case.
On June 26, Kaplan said prosecutors violated the defendants' constitutional rights to a fair trial and assistance of counsel in pushing KPMG to cut off fees. He invited the defendants to submit claims for legal bills.
According to the complaint, KPMG broke an ``implied contract" to advance fees ``consistent with KPMG's 30-year unbroken practice of doing so in civil, regulatory, and criminal cases and prosecutions."
A KPMG spokesman declined to comment. A lawyer for one of the plaintiffs provided the complaint.
The government is accusing the former partners and two other defendants of defrauding the IRS by setting up fraudulent tax shelters for wealthy clients.
Prosecutors say the scheme cost the government $2.5 billion of taxes, and won KPMG $115 million of fees.
The former partners say KPMG in early 2004, when it faced a federal probe into the shelters, decided to advance fees only to people who cooperated with prosecutors, with a $400,000 cap per person, and cut fees off when individuals were indicted.
David Rivkin, a former partner who pleaded guilty in March to conspiracy and tax evasion over the shelters, on Monday sued separately for legal fees.
In his June 26 ruling, Kaplan concluded that prosecutors ``held the proverbial gun to [KPMG's] head" in pressuring KPMG to change its fee policy.
Kaplan said the pressure arose from the use of a 2003 Justice memorandum by then deputy attorney general Larry Thompson.
The memo suggested that companies facing possible indictment might curry favor with the government if they stopped paying legal bills of accused employees.
KPMG last August agreed to pay $456 million, accept an outside monitor, and admit to wrongdoing to resolve the federal probe.
An indictment might have put the firm out of business, as it did for Arthur Andersen in 2002.
The defendants' trial is slated to begin Sept. 11, but many defendants have asked for a four-month delay.
A juror questionnaire approved this week by Kaplan shows that a trial is ``expected to last at least three and perhaps six months or more."
