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.

The proposed settlement covers former clients who participated in the tax shelters known as Blips, Flip, Opis, and SOS. The four shelters are the same ones that were the subject of KPMG’s deferred prosecution agreement under which KPMG admitted criminal wrongdoing and agreed to pay about $450 million in penalties. A New York grand jury recently indicted eight former KPMG tax professionals and a former Sidley Austin attorney in connection with the promotion of the tax shelters. Under the proposed class action settlement — which is scheduled for a preliminary hearing on October 7 — KPMG would pay about 80% of the $225 million and Sidley Austin about 20%.
Even if approved, the settlement does not solve KPMG’s tax shelter woes by any stretch because dozens of other former KPMG clients are pursuing their own individual lawsuits against the firm in various state and federal courts. There are approximately 325 former KPMG clients who bought the tax shelters who are not involved in the class action.
Cohen Milstein Hausfeld & Toll PLLC — a law firm that has requested class action status for its own shelter lawsuit against KPMG — has already filed an objection to the proposed settlement in which it requested a stay of the class action until the Court determines whether Milberg Weiss should be disqualified as lead plaintiffs counsel in the case. In the pleading, Cohen Milstein accuses Milberg Weiss of taking on a former KPMG shelter customer as an individual client three years ago and subsequently failing to notify the client that Milberg had begun negotiating the class action settlement with KPMG. Milberg filed the Newark class action lawsuit in June 2005.