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Several defense attorneys representing former KPMG partners say their clients would need anywhere from $10 million to $44 million to mount a reasonable defense to what has been called the largest criminal tax fraud in U.S. history. Their estimates are contained in court papers intended to influence Southern District of New York Judge Lewis A. Kaplan as he considers motions to dismiss the charges. “If a defendant had access to full funding to defend this case properly, I would estimate the overall costs of defense to be in the range of $24 million for the first trial, with a necessary reserve of an additional $14 to $20 million for potential appeals and a retrial,” Steven M. Bauer, a partner at Latham & Watkins who represents defendant John Larson, said in filings this week in United States v. Stein. The defendants claim their rights were violated when KPMG, in response to pressure from the government, declined to reimburse them for their legal costs. Kaplan agreed last year that the government had coerced KPMG, in exchange for a deferred prosecution agreement, into cutting off money to pay the legal fees of 16 former employees. Kaplan is now trying to come up with a remedy. Defense attorneys say dismissal is the only possible option. The government does not accept the judge’s criticism of its conduct but said the charges against 12 employees must be dismissed if the judge sticks to his opinion. At a July 2 hearing, Kaplan asked the government what it thought “a reasonable, privately-funded defense would cost in this case” and what it thought the “minimum cost of a competent, privately retained defense for an individual in this case would be.” He also asked prosecutors for an estimate of “the reasonable cost to each defendant of properly defending this action with privately retained counsel and the basis for those estimates.” Southern District of New York U.S. Attorney Michael J. Garcia’s office wrote the judge that it was “not in the position to answer” his questions. “The government is not aware of any court decision or other authorities discussing how to determine, in advance of trial, what level of legal fees and expenditures would be �reasonable’ in a criminal case,” it said in a June 9 letter. In a footnote, however, prosecutors cited reports that former Enron Chief Executive Officer Jeffrey Skilling’s defense cost $70 million, and that former HealthSouth CEO Richard Scrushy paid around $21 million in legal fees. Kaplan did not ask the defense attorneys to answer the questions, but counsel for eight separate defendants nevertheless shared their estimates of the cost of a “realistic” or “reasonable” defense. Defense attorneys also mentioned what other high-profile white-collar cases have cost. Susan R. Necheles, a partner at Hafetz & Necheles who represents defendant Richard Rosenthal, pointed to media reports that Kenneth Lay, Enron’s ex-chairman, spent at least $25 million in legal fees and that E. Kirk Shelton, Cendant Corp.’s former vice chairman, spent $24 million. High-Priced Litigation Necheles said that based on these cases, “legal fees and expenses of $15-20 million in the instant case for a 20 million-page document case that is estimated to last six to eight months is a reasonable estimate of what the defense would cost if the legal fees were being paid by KPMG.” The defense attorneys said that if the government had not pressured KPMG � and as a result if their clients had the company’s resources at their disposal � their fees would be comparable to those in other cases. David Spears, a partner at Spears & Imes who represents defendant Jeffrey Stein, estimated that legal fees in the case would cost more than $10 million. In court filings he said that if Stein were indemnified “we would do a vast array of things that we have not and will not do.” If resources were available, Spears said he would retain an “electronic evidence consultant” to assist in sorting through and organizing the 22 million pages of electronic files in the case, as well as a forensic accountant. He also said he would have at least four associates and four legal assistants reviewing the documents identified to him by the electronic evidence consultant to search for evidence that was either favorable or unfavorable to Stein’s defense. “I believe the lack of availability of Mr. Stein of the funds from KPMG to pay for the work I have described … could well mean the difference between conviction and exoneration,” Spears said. “The lack of availability of those funds has prejudiced and will prejudice Mr. Stein in his efforts to defend himself.” Kaplan also has given the defense attorneys the option of providing under seal copies of bank records and other information about their clients’ financial situation. This article originally appeared in theNew York Law Journal, a publication of ALM. �

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