Legal News

KPMGers Off to Prison, With a Little Help from Learned Hand

By Nathan Koppel

Let's turn our attention to KPMG, shall we? The accounting giant is all over the news today.

First off, New York federal judge Lewis Kaplan yesterday handed down criminal sentences in a long-running prosecution alleging that KPMG sold improper tax shelters.

Former KPMG tax partner Robert Pfaff was sentenced to 97 months in prison and ex-KPMG tax manager John Larson lands a 121-month sentence.

More notable for us, though, attorney Raymond J. Ruble, a 63-year-old former Brown & Wood partner, got 6 ½ years in the pokey. Here's a piece on the sentences from the National Law Journal, which says that Ruble was sentenced for his role in giving opinion letters that endorsed the KPMG shelters.

NLJ says that Kaplan quoted Learned Hand, opining that there was nothing wrong with people trying to pay the least amount of taxes, but that these men had concocted a scheme “so raw, so brazen, so outrageous” that it was clearly on the wrong side of the line separating poor or ineffectual tax planning from crime.

The criminal sentences mark a rare bright spot for New York prosecutors who have been accused of largely bungling the case. Charges against 13 of the defendants were dismissed after Kaplan found that prosecutors violated their rights to counsel by putting undue pressure on the accounting firm not to advance them defense costs. Here’s an LB backgrounder on the matter.

KPMG also got roughed up a bit yesterday in the bankruptcy of subprime lender New Century Financial. The trustee overseeing the bankruptcy sued KPMG, claiming that its "reckless and grossly negligent audits" helped bring down New Century.

Here's an article form WSJ. The suit claims that KPMG specialists tried to point out errors in New Century’s financials but were silenced by the KPMG partner in charge of the audits “to protect KPMG’s business relationship" with New Century.

The claims, according to WSJ, are among the first to attempt to blame auditors for the subprime-mortgage crisis. KPMG disputed the claims. “Any claim that we acquiesced to client demands is unsupportable,” KPMG spokesman Dan Ginsburg said.

Full post as published by Law Blog - WSJ.com on April 02, 2009 (boomark / email).