With its deferred prosecution agreement with the government finalized, the first criminal indictments were filed today against former KPMG partners in connection with the creation and promotion of tax shelters that still threatens the firm ability to survive as a going concern. Today’s indictment charges eight former KPMG executives — including former KPMG deputy chairman Jeffrey Stein and four other lawyers (including one former Sidley Austin partner) — with conspiracy for designing and marketing the fraudulent tax shelters. Here are the previous posts on KPMG’s tax shelter woes, and here is the indictment.
Although the criminal charges and probable future charges against other KPMG personnel ensure bad publicity for the firm for years, the government’s controversial decision to terminate former accounting giant Arthur Andersen by indicting that firm is ironically the reason that KPMG just may survive the fallout over the tax shelter indictmetns. With large public companies having so few other choices for auditors left, KPMG’s still stout audit practice may be able to generate enough business to makeup for the loss of KPMG’s once lucrative tax shelter practice.
The admissions that KPMG made today in connection with its deferred prosecution agreement will assist the government in prosecuting the indicted individuals and in future cases against other former KPMG partners, bankers, lawyers, and outside advisers who participated in creating and promoting the shelters. For example, KPMG admitted the tax shelter that it sold under the name “Bond Linked Issue Premium Structure” (“Blips”) was a fraudulent tax shelter and admitted that the firm engaged in fraudulent conduct in connection with two other shelters, known as “Flip” and “Opis.” Among the major banks that provided financing for the shelter transactions were Deutsche Bank AG, HVB Group and UBS AG, whose former executive — Domenick DeGiorgio — has already pled guilty to fraud and conspiracy charges in connection with the Blips transactions.
Here is the KPMG statement on the deferred prosecution agreement.