Thursday, August 28, 2008

Update on US v. Stein et al.

The 2nd Circuit Court of Appeals affirmed the dismissal of the charges against the KPMG defendants:

We affirm the district court’s ruling that the government deprived Defendants-Appellees of their right to counsel under the Sixth Amendment by causing KPMG to place conditions on the advancement of legal fees to Defendants-Appellees, and to cap the fees and ultimately end them. Because the government failed to cure the Sixth Amendment violation, and because no other remedy will return Defendants-Appellees to the status quo ante, we affirm the dismissal of the indictment.


In the big KPMG tax shelter case, back in June 2006, Federal District Judge Kaplan ruled that the prosecutors violated the Fifth and Sixth Amendment rights of KPMG Defendants because it was demonstrated that the government had interfered with KPMG's practice of paying legal expenses for cases involving their work with the firm. The government's activity stemmed from the Thompson memorandum, which essentially said that if KPMG paid defense fees of its employees, that would be used as evidence against KPMG itself.

Note that the Thompson memorandum has since been supplanted by the McNulty memorandum as this short Wall Street Journal article points out. Under the new memo, paying your employees attorney's fees is still a factor in deciding whether to prosecute a company.

It looks like, under this opinion, paying your employee's attorney's fees cannot be used as a factor to decide to prosecute so long as your company has had an established policy of doing so and does not implement such a policy for the purpose of impeding an investigation.

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