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JUDGE: KPMG PROSECUTORS ACTED UNCONSTITUTIONALLY, BUT CHARGES AREN'T DROPPED

June 27, 2006

A U.S. Judge helped out the finances of the indicted former KPMG partners by opening the door for the international accounting firm to pay the parters' legal fees -- and then vigorously motioning the firm through that door. The judge declined to drop the charges, however. The Wall Street Journal reports ($link):

A federal judge in Manhattan found that government prosecutors violated the constitutional rights of 16 former KPMG LLP executives facing criminal charges for allegedly marketing fraudulent tax shelters by pressuring the firm to cut off their legal fees.

But U.S. District Judge Lewis A. Kaplan declined to dismiss the indictment against the former KPMG employees, saying they could file civil claims against the accounting firm to have the fees paid. He also suggested that KPMG could agree to advance the fees, and said the government could use its "leverage" to get the firm to pay the legal fees beyond its $400,000 cap.

In case somebody didn't get the hint:

Judge Kaplan left open the possibility the court could take further action if the fee issue isn't resolved. "The court declines to consider additional relief at this time, although it may do so in the future if KPMG does not, for one reason or another, advance defense costs," he wrote

The fees for the defense have to be enormous, so this must be a great relief to the defendants and their families. Given that long prison sentences are still a possiblity if the charges ultimately stick, the defendants can be excused if they aren't too happy just yet. Of course, being able to pay your lawyers can't hurt them on that score.

The TaxProf has a roundup.

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