And Now For Some KPMG Good News
You may question my choice of title for this post. After all, it describes the end of the tax shelter prosecution of the KPMG 13. And it was former KPMG employees, not current KPMG employees or partners who cheered when federal Judge Lewis Kaplan dismissed charges yesterday against them, 13 former employees of the accounting firm KPMG.
Those who commit crimes — regardless of whether they wear white or blue collars — must be brought to justice. The government, however, has let its zeal get in the way of its judgment. It has violated the Constitution it is sworn to defend.
And KPMG themselves settled their part of the KPMG tax shelter case a long time ago. KPMG paid a big fine and has now successfully completed the court ordered monitoring period of the firm by Richard Breeden, who is also a KPMG audit client investor.
Attorney and quintessential blogger Francis G. X. Pileggi puts the legal spin on the dismissal of appeal on KPMG 13:
“Advancement of legal fees under DGCL Section 145 (FM Note: this is what the KPMG 13 case is about) is a quintessentially Delaware legal topic that has been the subject of 39 different posts (many mention KPMG) over the last four years on this blog.
(See list of posts here.)“
I’ve written about the KPMG case many times, here, here, and here as a start. And I recently had to write about some bad news for KPMG.
Unfortunately, there are still some former KPMG partners on trial, along with a lawyer and two former KPMG employees have already pleaded guilty.
As we all know, pleas and dismissals mean less KPMG dirty laundry will continue to be aired and perhaps KPMG will appear in the news more often for positive reasons, rather than associated with felons and indicted potential felons.
Who said… Any publicity is good publicity.
Is it correct KPMG still has permanent restrictions on their ability to practice tax in relation to wealthy individuals?
@2:18:00 I’m not sure, but I will check. As part of the consent decree, they had to get out of certain types of tax services and also severely restrict their marketing of what’s left. They interpreted that at the time to restrict marketing activities in general. Not a big deal because Sarbanes-Oxley work was falling off the tree like an overripe apple. They’re back, in a sense, but not sure to what extent. Great question.
Francine, as always, you are on top of the news with the accounting firms. It does seem unfair that the prosecutors prevented KPMG from paying the legal fees of the employees on trial. Hopefully, KPMG learned its lesson. It sounds like it is time for KPMG to join the major players again. It would be interesting to see what they do, and how they do it, in light of the current economic recission. Keep the posts coming!
Francine:
My spin on the KPMG-DOJ is very different. The DOJ never prevented KPMG from doing anything. KPMG and the DOJ went through a multi-year kabuki dance in which KPMG offered the DOJ a few sacrifices to be thrown into the mouth of the volcano so KPMG could pay a fine and walk away. I’ve followed this case for years and it stinks to high heaven. All of the supposed DOJ intimidation of KPMG was nonsense. It was just a “cover story” for the real deal in the backroom.
Independent Accountant —
So you’re saying that the judge was in on it too? Because that’s not how the decisions have read.
Independent Accountant:
Right, a 435 million dollar fine is a slap on the wrist. What were you expecting? Some Andersen like malicious prosecution that would only get overturned by the Supreme Court? Let’s get real.
Thanks for the kind hat tip.
Anonymous 9:19:
No I don’t think the judge was in on it.
Chicago Accountant:
I do not think the Andersen prosecution was malicious at all. The $456 million was just part of the KPMG-DOJ cover story.
Update on the BCE deal… looks like your favourite accounting firm has entered the picture! BCE has hired PwC to try to sway KPMG’s solvency opinion.
“PwC can’t change outcome for BCE”
http://www.theglobeandmail.com/servlet/story/RTGAM.20081208.WBstreetwise20081208220455/WBStory/WBstreetwise
“BCE tries to salvage takeover deal”
http://www.theglobeandmail.com/servlet/story/RTGAM.20081209.wbce1209/BNStory/Business/
Independent Accountant:
Cover story? Can you explain? Do you believe the payment will never be paid aor do you think the payment is covering up something bigger? A nearly 435 million dollar penalty is not a small amount to any firm.
The Andersen prosecution was malicious. Chief Justice William Rehnquist wrote the 9-0 “It is striking how little culpability the [jury] instructions required.” Per CNN, “The opinion came unusually quickly after oral arguments in the case were held April 27, a clear sign the justices found the government’s arguments quite unpersuasive. Lawyers for the Justice Department faced tough questioning from the bench during the arguments. ”
If you want me to explain why the DoJ was built on nothing, I can do so. However, you can find a number of papers from law professors who have wrote extensively why Nancy Temple, Andersen’s Assistant General Counsel at the time, did nothing wrong. If you recall, it was her email reminding Andersen employees of document retention policies that became the center piece of the case. Ms. Temple, an accountant and Harvard educated lawyer, was just doing what any responsible lawyer would do. Indeed, if she had did not instruct Andersen in the way she did, she would have failed in her professional duty. If you follow the events of the time, it appears the Andersen case was politically motivated.
Chicago Acct,
I agree, not withstanding that there were issues at Andersen that needed to be dealth with, the gov’t approach was misguided, leading to a firm failing (even though ultimately exonerated) while responsible individuals (David Duncan) still (to my knowledge) haven’t properly been held accountable. So, the wrong people suffered, the gov’e looks like fools, and the guilty pretty much got off.
Disclosure: I was with Andersen when it failed, and went from there to KPMG, but left KPMG before the tax shelter settlements.