Robert Weisberg is Edwin E. Huddleson, Jr. Professor of Law and director of the Criminal Justice Center at Stanford University, where he teaches a course on white collar crime with David Mills, who is a senior lecturer there. In this Wall Street Journal ($) op-ed, Messrs. Weisberg and Mills dissect the Justice Department’s indictment against eight former KPMG partners for their involvement in advising and promoting allegedly illegal tax shelters for clients of the firm. Messrs. Weisberg and Mills point out that there is just one small problem with the indictment:

In the months leading up to it (and the now-rumored indictment of other tax advisors on similar grounds), numerous news stories suggested the KPMG accountants had somehow knowingly participated in tax fraud by creating fake losses for wealthy clients. Whether or not this proves true, the indictment makes no such allegation.

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Following on earlier plea bargains, former General Reinsurance Corp. CEO Ronald Ferguson received a Wells notice from the Securities and Exchange Commission late last week in regard to the SEC’s investigation into various “finite risk” structured finance transactions between General Re — a subsidiary of Warren Buffett’s Berkshire Hathaway — with American Insurance General. A Wells notice advises the recipient that the SEC intends to pursue him for alleged violations of securities law and often precedes a criminal indictment on the same matters. Here are the previous posts on the investigation into General Re, AIG and Berkshire.

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After criticizing the Wall Street Journal yesterday for running a listless article about prosecutorial misconduct in the Enron-related criminal cases, it’s only fair to note that the WSJ editors do much better today in this editorial ($) (see this related NY Times article) decrying the fact that nine defendants — including eight former KPMG partners — have been sold out to the government by the firm (see also this post) and face criminal prosecution for tax shelters that have never even been determined to be illegal from a civil standpoint (here are the previous posts on the KPMG tax shelter saga). The WSJ notes as follows:

The KPMG case attempts to short-circuit the messy business of proving that a tax shelter is illegal by using the power of prosecution to target the tax advisers directly. And by cutting them off from the support of their firm through the threat of a death-sentence indictment of KPMG itself, the government seems intent on compelling the accused to cop a plea or settle the case, and so deny them their day in court.
Tax evasion is a serious matter, but so is a criminal indictment for conspiracy. KPMG’s partners in this case believed they were selling shelters that were entirely legal, and the underlying legality of those shelters has never been formally challenged. Yet the government has come down on those accountants and tax lawyers as if they belonged to the mob. A case of curiouser and curiouser, said Alice.

The Journal should be complimented for addressing the misuse of criminal law in the KPMG case, which is another example of the criminalization of business generally that has taken place in the U.S. since the hyper-publicized demise of Enron. However, precisely the same situation that is taking place with regard to the KPMG defendants — i.e., defendants sold out by their employer and pre-emptive criminalization of business conduct before it has even been determined to be illegal from a civil standpoint — has already resulted in egregious miscarriages of justice in the sad case of Jamie Olis and in the Enron-related Nigerian Barge case and Coyote Springs case. It’s convenient to criticize such conduct when the target is a high-profile executive or former partners in a highly-publicized accounting firm. But where has the WSJ been with regard to those lesser-known but equally misguided prosecutions, which have already resulted in untold misery to the imprisoned executives and their families?
Oh well, better late than never, I guess.

Battered and bruised after negotiating a deferred prosecution agreement with the Justice Department that narrowly prevented a criminal indictment of the firm, accounting giant KPMG LLP took another baby step yesterday in its plan to attempt to preserve the firm as a going concern by agreeing to submit a proposed $225 million settlement to the federal court overseeing the class action lawsuit by about 275 former KPMG clients who bought illegal tax shelters promoted by the firm. The Sidley Austin Brown & Wood LLP law firm — another defendant with KPMG in the class action — is also included in the proposed settlement, which remains subject to the U.S. District Court’s approval in Newark, N.J. Here are the previous posts on the KMPG tax shelter fiasco.
Interestingly, lead plaintiffs’ counsel in the class action is Milberg Weiss Bershad & Schulman LLP, which has a few problems of its own.

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You remember Kenneth Langone, don’t you?
Mr. Langone is the co-founder of Home Depot who chaired the New York Stock Exchange compensation committee that approved Richard Grasso’s $140 million pay package. As a result, he is a defendant along with Mr. Grasso in New York Attorney General Eliot Spitzer‘s lawsuit to recover alleged overcompensation paid by the NYSE to Mr. Grasso. As this previous post from over a year ago indicates, Mr. Langone does not think much of Mr. Spitzer’s lawsuit.
Well, in this delicious follow-up OpinionJournal op-ed, Mr. Langone updates us on Mr. Spitzer — who he calls “the full-time New York state attorney general and part-time fund-raiser for his political ambitions” — and his use of the high-profile lawsuit against Messrs. Grasso and Langone to promote his political career.

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Former Tyco International executives L. Dennis Kozlowski and Mark Swartz were led away from a New York City state courthouse in handcuffs today after New York state Justice Michael Obus sentenced them to serve 8 1/3 to 25 years in prison and pay a total of about $240 million in restitution and fines for being convicted of corporate fraud and conspiracy for looting Tyco of more than $150 million. Prior posts on the conviction of Messrs. Kozlowski and Swartz are here and here.
Under New York law, defendants generally are eligible for parole based upon their minimum sentence, but can earn one-sixth off that time for good behavior and other good deeds while in prison. Accordingly, Messrs. Kozlowski and Swartz could serve as little as about 7 years so long as they are good boys in prison. However, it looks like the men will serve hard time because the New York State Department of Correctional Services generally assigns prisoners to maximum security prisons who have more than six years until they are eligible for parole. Although the Department has leeway to modify that policy according to the circumstances of individual cases, don’t bet on that sort of discretion in cases involving former corporate executives — just ask Jamie Olis.
Update: Ellen Podgor has typically insightful comments on the Kozlowski and Swartz sentencings over at the White Collar Crime Prof Blog. In addition, Professor Bainbridge provides a good overview of the policy considerations emanating from draconian sentences of business executives, and makes a particularly good point that such sentences do little to deter the Kozlowskis of the world, but could very well deter the type of creative risk taking that generates beneficial economic activity.

Following on this post from last month, this New York Times article reports that, on the heels of KPMG’s deferred prosecution agreement with the Justice Department and the subsequent indictment of eight former KPMG partners, federal prosecutors are apparently focusing on other firms involved in the creation and promotion of allegedly illegal tax shelters, including Deutsche Bank and possibly Ernst & Young, the law firm of Sidley, Austin, Brown & Wood, and Texas-based law firms Jenkens & Gilchrist and Scheef & Stone. Here are the previous posts on the KPMG tax shelter saga.

It should be considered progress whenever the New York Times runs an article questioning the draconian prison sentences that are being handed down to business executives in connection with the government’s criminalization of business during the post-Enron era. However, one question is prompted by the Times article:
How on earth does one write such an article without noting the sad case of Jamie Olis?
For much more complete analysis of white collar criminal sentences, check out this post over at Doug Berman’s blawg, Sentencing Law and Policy.

Even news relating to natural disasters cannot push the Lord of Regulation out of the public eye for long.
In a widely-anticipated move, Mr. Spitzer’s office indicted eight former Marsh Inc. insurance brokers and executives yesterday on criminal-fraud charges in connection with Mr. Spitzer’s long-running investigation of alleged bid-rigging in the insurance industry. Earlier posts on Mr. Spitzer’s forays against the Marsh employess are here and here.

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