June 1, 2007 / 12:04 AM / 13 years ago

Judge ponders dismissing KPMG case: experts

NEW YORK (Reuters) - A U.S. judge may be laying the groundwork for a plea agreement or possible dismissal of a case against 16 former KPMG KPMG.UL partners accused of creating and marketing fraudulent tax shelters, legal experts said.

In a filing on Thursday, U.S. District Judge Lewis Kaplan asked defense attorneys what sanctions other than dismissal of the entire indictment are available, and what steps the government could voluntarily take to remedy constitutional violations related to payment of the former partners’ legal fees.

The questions indicated that the judge may want the government and the former KPMG partners to reach a settlement, one expert said.

“This could be a subtle way of telling the government there’s still room for you guys to cut a deal,” said Anthony Sabino, a law professor at St. John’s University’s Tobin College of Business.

“He’s stating that he has found constitutional violations and he’s weighing what the remedy is,” said Kathryn Keneally, a white collar criminal defense attorney at Fulbright & Jaworski in New York.

In a case the government has called the largest U.S. criminal tax case in history, prosecutors have accused the former partners at the “Big Four” accounting firm of helping to cheat the federal government out of $2.5 billion in taxes by setting up abusive tax shelters for wealthy clients.

But the case has been complicated as KPMG withheld payment of legal fees on behalf of its former partners in conjunction with a $456 million settlement agreement that allowed KPMG to avoid its own indictment.

Kaplan, hearing the case in Manhattan, ruled last year that the government unconstitutionally pressured KPMG to withhold payment of legal fees for its 16 former partners.

In a court filing, Kaplan said “it would be helpful” if defendants answer specific questions about his options when they file motions to dismiss the indictment.

“He could very well be seriously considering dismissing the indictment, but wants to be absolutely sure of the grounds he’s on,” Sabino said.

Kaplan asked defense attorneys what sanctions other than dismissal of the entire indictment are available, and what steps the government could voluntarily take to remedy the constitutional violations, according to the filing.

Kaplan intended to hold a secondary proceeding over the legal fee issue, but the U.S. 2d Circuit Court of Appeals, ruled this month that he had no standing to do that.

In its opinion, the appeals court left the door open for Kaplan to possibly dismiss the case.

Several people have already made plea bargains in the case and legal experts said Kaplan could still go either way. But they also said it seemed he was encouraging the parties to be creative about plea options or other alternatives to dismissing the case.

“He’s still moving forward on uncharted territory,” Keneally said. “The 2d Circuit left open the possibility that one of the options is to dismiss the case. It does look like he’s weighing that option.”

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