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TORT SHARKS CIRCLE WOUNDED KPMG

June 23, 2005

An article in yesterday's New York Times reports that KPMG's courtroom problems don't end even if it avoids being indicted. Their admission of "unlawful conduct" has had a calming effect on its civil litigation akin to that of throwing bloody meat into shark-infested waters:

With the admission of unlawful conduct, "the firm's willingness to help the government presumably can be used against it in civil actions," said Howard E. Abrams, a white-collar defense lawyer in Atlanta.

Indeed, lawyers for investors who bought questionable shelters from KPMG were delighted by the admission.

"It's stunning," said Gerald H. Silk, whose New York firm, Bernstein Litowitz Berger & Grossmann, is pressing a lawsuit against KPMG in a state court in Arkansas. "Obviously, it's very helpful."

The report also quotes "a former top Internal Revenue Service official" on the likely outcome of the KPMG criminal investigation:

A former top Internal Revenue Service official said he expected that prosecutors were "not trying not to bring down the firm" but wanted to impose a deferred-prosecution agreement, with "a penalty in the tens of millions of dollars," as well as a ban lasting months on accepting publicly traded companies as new clients. The former official also said that he expected the Justice Department to pursue individual partners.

The tax-shelter industry may turn out to be as profitable to the accounting professon as a methamphetamine addiction.

Hat tip: The TaxProf Blog, which has a roundup of KPMG coverage this morning.

UPDATE:: Firms Compete for Class Settlement Action in KPMG Investor Suits

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