Dismissal Sought For KPMG Case On Tax Shelters
By David Reilly and Paul Davies, Staff Reporters
THE WALL STREET JOURNAL
Friday, January 13, 2006
In the first formal glimpse of what is expected to be a
vigorous defense, attorneys for 19 defendants facing
criminal charges related to sales of tax shelters by KPMG
LLP yesterday asked a federal judge to dismiss the
government's case, arguing the products sold to wealthy
individuals weren't illegal.
One defense filing, submitted to the U.S. District Court in
New York, accused prosecutors of "distorting" the facts and
"obfuscating the truth-finding process" in order to win the
case. By threatening KPMG with criminal indictment, the
motion said, the government forced the firm to accept a
"draconian" deferred prosecution agreement in which it
admitted the tax strategies were fraudulent and agreed to
waive attorney-client privilege.
"The goal is obviously not justice, nor truth, but instead
the unsavory desire to tack another skin to the wall," the
The legal filings marked the first formal rebuttal by
defense attorneys of the government's case since the
individuals were indicted last year on tax evasion and
conspiracy charges. All 19 of the defendants, 17 of whom
are former KPMG tax professionals, have pleaded not guilty
to the charges.
Representatives of the U.S. Attorney's Office didn't return
calls for comment.
Underlining the case's complexity, all the defendants filed
individual motions. Many sought to have the actions against
them severed from those of other defendants. Others asked
for a change of venue from the Southern District of New
York. Most of the defendants also took part in some of what
were expected to be at least five joint motions attacking
the substance of the government's charges related to four
KPMG tax shelters at the heart of the case, lawyers involved
in the case said.
Those shelters, sold to about 600 wealthy individuals
between 1996 and 2002, generated about $2.5 billion in tax
savings. KPMG last year entered into a $456 million
settlement with the government to avoid prosecution for
selling the shelters.
"The tax shelters at issue had never been declared illegal
or in any way improper by any court," lawyers for the 19
defendants said in a joint filing. KPMG only admitted that
the shelters were fraudulent to avoid a criminal indictment
that probably would have put the firm out of business, they
Prosecutors contend the shelters were fraudulent and that
the defendants knew they wouldn't survive a challenge by the
Internal Revenue Service. The legality or illegality of the
shelters likely will be a central theme of the case.
Defense motions also argued that even if the shelters ran
afoul of the law, rules governing the products at the time
didn't make it clear that they were illegal. As a result,
defense attorneys argued, the indicted individuals shouldn't
be charged because they didn't know they were breaking the
law. The attorneys said that in tax law, unlike in many
other areas of law, individuals can be convicted only if
they knew they were breaking the law.
David Reilly at
firstname.lastname@example.org and Paul Davies at