If you recall, the US government sought to prosecute former partners of KPMG and others for their promotion of deals that the government considers tax shelters. KPMG avoided indictment for a $465 million settlement payment and a cooperation agreement.
In a hearing last year, District Judge Lewis Kaplan threw the case against 13 of the former KPMG partners out of court, saying that the government had violated their constitutional right to an attorney via the Thompson Memo, a government document that included among factors for prosecutors to consider in deciding whether to prosecute a company whether the company payed for legal defense for indicted employees. KPMG didn't have a fixed policy of paying legal fees for indicted employees, but that had been its practice in the past. Kaplan thought it likely that KPMG would have paid their fees in this case without the government's interference.
The Judge seemed to think that nobody could get a decent defense unless they could pay millions for it. And he also seemed to think that they were constitutionally entitled to the very expensive defense they would have had if KPMG hadn't decided not to provide their legal fees. Is this an elitist view of the rights of the elite? I don't see these judges saying poor people are entitled to the best defense money can buy--even in death penalty cases. But there is a point here--the Chief Judge noted in Tuesday's argument that the government has no legitimate interest in impairing the quality or quantity of a defense. Mark Hamblett, No Coercion in KPMG Case, Prosecutor Says, NYLJ (Mar. 26, 2008).
Anyway, Judge Kaplan threw out the case. Now prosecutor Karl Metzner is trying to revive it, arguing before the Second Circuit Court of Appeals that it was thrown out on erroneous grounds . It didn't pressure KPMG to stop paying the defendants' legal fees, he says. KPMG used its own business judgment in making the decision. Mark Hamblett, No Coercion in KPMG Case, Prosecutor Says, NYLJ (Mar. 26, 2008). Furthermore, even if their legal rights were violated, it was only for a short period of time and didn't merit throwing out the case. And furthermore, there is the basic problem of Kaplan's ruling: "It suggests that any defendant in a complicated fraud who doesn't have substantial resources could not get a fair trial." Emily Chasan, US Tries to Revive ex-KPMG employees tax case, Reuters (Mar. 25, 2008).
The defense counsel claimed the prosecution played "dirty pool" and claimed one of the partners was essentially betrayed by KPMG--being sent before the Senate subcommittee "tutored" and then later having the firm agree that he had testified falsely. Mark Hamblett, No Coercion in KPMG Case, Prosecutor Says, NYLJ (Mar. 26, 2008).
For the prosecution, Metzner noted that "a defendant has no Sixth Amendment right to spend another person's money--even if those funds are the only way the defendant can have the lawyer of his choice." Id.
Judge Jacobs wondered if it might not be a rational decision for KPMG to decide now not to pay fees after it has been assessed a $456 million fine for the acts of the defendants. Id.
I suspect the government is not going to get to reinstate its case.....
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