The trial of the remaining 5 KPMG defendants will apparently begin in October as scheduled. The judge on Aug. 3 denied the defendants' motion for a continuation.
As corporate attempts to avoid tax through super-aggressive schemes become more widely understood, the corporations face not just IRS penalties and interest, but the potential for class securities fraud claims. Case in point--In re Tommy Hilfiger Securities Litigation, S.D.N.Y. No. 04 Civ. 7678 (July 20, 2007). The US district court in the Southern District of New York decided in July that plaintiff's claims were adeuqate for the case to proceed. The complaint alleges an illegal tax evasion scheme to lower its effective tax rate and falsely improve its financial condition. The scheme involved payment of an inflated "buying office commission" to an oversaes subsidiary, resulting in moving income offshore and avoiding US tax on that income. The government entered into a nonprosecution agreement with the company, but the securities fraud case will go forward.
Similarly, in San Francisco, former Brocade CEO Greg Reyes was convicted Aug. 7 for backdating stock option grants for his friends. The company had agreed to pay $7 million to settle SEC civil fraud charges back in May, without admitting the SEC's allegations. These charges are for securities violations, not tax law violations. For public companies, the backdating of currently in-the-money options to a period when they appear to be at-the-money leads to inappropriate reporting of compensation expenses.
Note--it is very unlikely these days that big corporations will be indicted for criminal actions, even if the corporate behavior clearly qualifies. See this discusison of the increased use of non-prosecution agreements to avoid charging large corporations. The business outcry over the impact on Arthur Andersen of its prosecution for accounting fraud had a major impact on prosecutors' willingness to pursue criminal indictments even against obviously guilty corporations.
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