KPMG Sanctioned for Discovery Abuse

Lawsuit concerns the former CFO of a small private company who allegedly embezzled funds for his own use.
Stephen TaubJuly 18, 2005

KPMG LLP has been sanctioned by a California judge for hiding critical documents in an accounting-malpractice lawsuit brought by Targus Group International Inc., according to the Associated Press.

Orange County Superior Court Judge Geoffrey Glass ordered KPMG to pay $30,000 for “its abuse of the discovery process,” according to the AP, and told the jury they should weigh this behavior when they consider the case.

In his order, issued last week, Judge Glass reportedly wrote that “the court warned KPMG-US at least twice about gamesmanship in discovery.” The Court also concluded that KPMG “withheld or delayed in producing many responsive documents in order to gain unfair advantage,” according to a press release from Targus, a small private manufacturer of computer cases.

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“We’re disappointed by the court’s ruling,” said a KPMG spokesman in a statement, according to the wire service. “We fully complied with all discovery orders in the Targus case. We plan to seek appellate review of this order.”

In 2001, former Targus chief financial officer William Anthony Lloyd pleaded guilty to 15 counts of wire fraud. Lloyd diverted $25 million from Targus’s line of credit to fund his own stock-trading account, according to the White Collar Crime Reporter, but returned it before the fraud was detected. He later diverted $9 million to fund companies he owned, the Reporter added.

Lloyd, a British citizen, served prison time in the United States and was later deported.

In January 2003, Targus sued KPMG, alleging that the accounting firm’s negligence cost Targus about $50 million due to Lloyd’s alleged embezzlement, the AP added.