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KPMG and Sidley, Austin, Brown & Wood have reached a $225 million settlement with plaintiffs in a class action suit that charges the firms with having sold bogus tax shelters. The settlement, in Simon v. KPMG LLP, 05-3189, is subject to approval by U.S. District Judge Dennis Cavanaugh in Newark, N.J., who will hear the matter on Friday. It would end litigation lodged by KPMG clients who, in the late 1990s, bought tax shelters that R.J. Ruble, a partner for Sidley Austin’s predecessor firm, Brown & Wood, helped develop. Ruble wrote more than 600 letters to clients declaring the shelters would withstand Internal Revenue Service scrutiny. But even while the shelters were being sold, KPMG officials wrote memos expressing doubts about their validity, the plaintiffs claim. Sale of the shelters was discontinued after the IRS disallowed them. The parties reached the agreement after a year of mediation with former U.S. District Judges Nicholas Politan of New Jersey and Daniel Weinstein of California. Plaintiffs counsel Melvyn Weiss asked Cavanaugh to give preliminary approval to the settlement Sept. 27. Weiss said in a declaration that the pact, which provides $195 million for the class and $30 million in plaintiffs counsel fees and costs, would give claimants more than the payouts in settlements of individual suits filed against the two firms. Weiss asked the court to certify the class, appoint his firm, Milberg Weiss Bershad & Schulman of New York, as lead class counsel and appoint Politan and Weinstein as special masters to carry out the settlement. Milberg Weiss faced a challenge from another class action firm, Bernstein Litowitz Berger & Grossman, which had brought a similar action in federal court in Arkansas. Intervening in the New Jersey case, Bernstein Litowitz accused Milberg Weiss of conducting a “reverse auction” — negotiating with defendants before filing suit. The federal court in Arkansas denied class certification. Two other putative class actions were filed in the Southern District of New York in August and September of this year. Weiss asked Cavanaugh to grant an order giving preliminary approval to the settlement, which he said would enjoin class members from continuing with prosecution of other suits. On Sept. 29, the plaintiffs in one of the New York class actions, Kottler v. KPMG, moved to intervene in the New Jersey case, asking Cavanaugh to stay the settlement pending the outcome of a transfer motion before the Multidistrict Litigation Panel. The plaintiffs also sought to have Milberg Weiss disqualified as class counsel, claiming a conflict of interest. Milberg Weiss had represented lead plaintiff Mark Kottler in Florida state court while the firm filed its class action in federal court in Newark.

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