Risk & Compliance

Judge: Feds Forced KPMG to Abandon Employees

A judge says prosecutors "violated the Constitution" by pressuring KPMG to cooperate with their investigation by withdrawing legal support from for...
Stephen TaubJune 27, 2006

A federal judge admonished prosecutors for pressuring KPMG to cut off legal fees for 16 former employees charged in the tax shelter scandal, according to the Associated Press.

Although KPMG chose to not pay the legal bills, US District Judge Lewis A. Kaplan blamed a Justice Department policy going back to at least 1999 that deemed companies to be “uncooperative” if they continued to pay the tab for accused wrongdoers, according to the report. Companies that cut off legal funds for their accused employees were credited for cooperating, the Associated Press claimed.

“KPMG refused to pay because the government held the proverbial gun to its head. Had that pressure not been brought to bear, KPMG would have paid these defendant’s legal expenses,” Kaplan wrote.

In recent years, a number of federal regulators, including the Securities and Exchange Commission, have been rewarding companies for cooperating during investigations. But that can cause tension between companies anxious to appear cooperative and executives who face the possibility of personal or even criminal liability.

“Those who commit crimes — regardless of whether they wear white or blue collars — must be brought to justice,”: Kaplan reportedly wrote. “The government, however, has let its zeal get in the way of its judgment. It has violated the Constitution it is sworn to defend.”

It is also not clear what action the Judge will take, although he stopped short of dismissing the charges against the former KPMG employees.

Kaplan did, however, suggest that the 16 individuals sue KPMG for breaching the previous agreement to pay their legal bills, according to AP. He even ordered a civil docket opened to make it easier for them to pursue, the wire service added.