Legal News

It?s Actually Happening: The KPMG Trial Begins in Manhattan

By Amir Efrati

At long last, the much-anticipated KPMG trial has started. Once billed as the biggest tax-fraud case in U.S. history, the prosecution of 19 mostly former KPMG executives for allegedly selling bogus tax shelters got derailed last year when a federal judge in Manhattan dismissed indictments against 13 of them. KPMG itself has also admitted to committing fraud and agreed to cough up a $456 million fine.

The judge, Lewis Kaplan (pictured), found that prosecutors, during their investigation of the firm, violated those defendants’ rights by pressuring KPMG not to pay their legal fees in order to avoid a possible indictment of the firm itself. Earlier this year, the 2nd Circuit agreed, and the Justice Department has twice said it would soften its approach in pursuing corporate crime investigations. (Past LB coverage here.)

Two of the charged defendants have pleaded guilty (here and here), leaving three former KPMG executives and ex-partner at Sidley Austin to face the charges. Here’s the walk-up to today’s trial from the NYT and a piece from last year in the WSJ, shortly before Kaplan delayed the trial by an entire year.

For the Manhattan prosecutors, a victory in the case against Robert Pfaff, John Larson and David Greenberg, and Raymond J. Ruble, which is expected to last several months, could bolster its probes into abusive tax shelters.

Prosecutors contend the underlying tax-shelter transactions were bogus investments designed to generate phony capital losses. In order to conceal the true nature of the tax shelters from the IRS, KPMG or a law firm provided clients with opinion letters containing false and fraudulent representations about the transactions, which generated millions of dollars in fees and income for KPMG and others, the government has alleged. Much of the testimony is expected to be complex and tedious information related to the sale of tax shelters.

The NYT notes that the government wants to present a dozen wealthy taxpayers as witnesses for the prosecution, including Doug Lowry, a former tax executive at CKE Restaurants, which owns the Hardee’s chain as well as current and former employees of Deutsche Bank, which is under a separate criminal investigation by Southern District prosecutors into its work with tax shelters.

Full post as published by Law Blog - WSJ.com on October 15, 2008 (boomark / email).