Thank you for sharing!

Your article was successfully shared with the contacts you provided.
There is more at stake than money in the pretrial skirmishing over whether the government interfered with the right to counsel by pressuring KPMG LLP to limit or withhold the payment of attorney fees to firm employees the government was investigating. Although defense lawyers in the massive tax-shelter prosecution say the federal government should be ordered to pay the fees of 16 former partners or employees, U.S. District Judge Lewis Kaplan’s decision to hold the government’s feet to the fire on the issue is being watched closely by the defense bar and business groups. The Securities Industry Association, the Association of Corporate Counsel, the Bond Market Association and the U.S. Chamber of Commerce weighed in recently as amicus curiae to try to persuade Kaplan that it is wrong for the U.S. Department of Justice to take into account a company’s policy on advancing and paying legal fees to employees during an investigation when the company is seeking to cooperate and avoid prosecution. Kaplan does not appear to need much persuading, as he was sharply critical of the government at a hearing several weeks ago that was held to determine if the right to counsel was violated and whether the government should be forced to pay legal fees for the defendants. Thompson Memorandum At the close of the May 10 hearing, the judge took aim at the Thompson Memorandum, a Justice Department policy guide for dealing with, and measuring, the compliance of companies seeking to avoid a corporate indictment. The memo, issued in January 2003, states that one factor to consider in judging a corporation’s cooperation is whether it “appears to be protecting its culpable employees and agents.” Among the ways to assess whether corporations are falling short of full cooperation, the memo states, is “a corporation’s promise of support to culpable employees and agents, either through the advancing of attorneys’ fees,” or its retention of wrongdoing employees without sanction or its provision to employees of information about the government’s investigation. Lead defendant and former firm Deputy Chairman Jeffrey Stein and his co-defendants used the hearing before Kaplan to focus on the memo and the actions of prosecutors beginning at a meeting on Feb. 25, 2004. At the meeting, KPMG’s attorneys from Skadden, Arps, Slate, Meagher & Flom of New York, led by Robert Bennett, pledged to cooperate with the government and were queried about KPMG’s policy on paying fees. Although KPMG had paid the legal fees of partners and employees in the past, this time it was different. The government probe into KPMG tax shelters, which would ultimately lead to the largest tax fraud prosecution in the nation’s history, was accelerating and the firm had just been blistered by Congress following hearings on the tax shelters. In KPMG’s case, the government alleged that the tax shelters cost the Internal Revenue Service more than $2 billion. The query into KPMG’s fee policy at the February 2004 meeting was answered by Skadden attorneys, who said they were investigating the policy and whether or not KPMG was legally obligated to pay for fees. Stein had already been cut loose from the firm and given a massive severance package that included, unbeknownst to prosecutors, a provision for the advancement and payment of fees. Shirah Neiman, chief counsel to the U.S. attorney for the Southern District of New York, took the witness stand at the hearing before Kaplan to say her statement during the February meeting that “misconduct” would not be “rewarded” was referring to Stein’s windfall severance package. But lawyers for Stein and other defendants said Neiman’s meaning was stark because she had just referred to the formal name of the Thompson memo, and she therefore was threatening KPMG on the fee issue. Pacifying prosecutors The defense lawyers say that KPMG, hungry to pacify the prosecutors, soon after the February 2004 meeting changed its policy to place a $400,000 cap on fees and condition the payment of fees on full cooperation with the government. Later, they said, KPMG pulled the plug on fees for Stein out of fear prosecutors would discover the arrangement and torpedo negotiations on a deferred prosecution agreement. It also refused to pay fees for indicted defendants. The negotiations came to fruition on Aug. 25, 2005, when KPMG consented to the filing of a one-count information charging conspiracy to defraud the United States, to commit tax evasion, to make and subscribe false tax returns and to aid and assist in the preparation and filing of such returns. The firm agreed to pay $456 million, and defense lawyers, arguing that the government interfered with the right to counsel under the Sixth Amendment and also violated due process, want the government to use that money to pay the fees of those under indictment. They are also seeking injunctive relief to limit the impact of the Thompson memo on corporate fee policy. That is a goal shared by the U.S. Chamber of Commerce and other business advocates. The groups had already filed one amicus brief arguing that the memo’s “attack on private fee advancement policies is bad for business and inimical to basic constitutional principles.” The groups’ recent amicus brief said that they wanted to address the impact of the distinction raised at the May 10 hearing between the advancement of fees “from the outset of an attorney-client relationship” and “indemnification of attorneys’ fees to employees that are exonerated of wrongdoing at the conclusion of an investigation or legal proceeding. “Without an advancement of fees, the mere prospect of indemnification offers little support for investigatory targets of limited means,” their brief said. “Financial institutions may be reluctant to loan large amounts to a targeted employee given the risk that the employer will refuse to make indemnification if the employee is found liable or strikes a plea bargain to gain closure.” For the same reason, they said in a brief by Christopher Davies of Wilmer Cutler Pickering Hale and Dorr’s Washington office, “criminal defense attorneys, particularly the busiest and most effective ones-will be reluctant to represent such employees under a deferred-payment arrangement.”

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.