In this earlier post, I noted that KPMG’s resistance to paying its former employees’ defense costs in the KPMG tax shelter criminal case could end up being an element in prompting US District Judge Lewis Kaplan to dismiss the charges because of the government’s prosecutorial misconduct in coercing the firm into that position.
Now, it looks as if KPMG has gone one step further. According to this Lynnlee Browning/NY Times article, KPMG is now suing several of its former employees who are also defendants in the criminal case for damages resulting from their alleged embezzlement from the firm and breach of fiduciary duty to the firm in regard to their involvement with the tax shelters.
That lawsuit — along with the firm’s continued refusal to pay their employees’ defense costs in the criminal case — must be giving current KPMG partners a warm and fuzzy feeling, don’t you think? Also, a note to KPMG — such civil suits have a little process called “discovery,” which often leads to the publication of embarrassing information. As if the firm needs any more bad publicity from this seemingly endless debacle.
Meanwhile, this Wall Street Journal editorial ($) reports that two previously undisclosed IRS memos to KPMG from 2003 and 2004 confirm that the Service didn’t think there was anything wrong with the shelters. The defendants in the criminal case are understandably demanding all government documents relating to such memos, and the prosecution — as is typical in this era of criminalizing business — is resisting those demands. In short, the legality of the KPMG tax shelters was a subject of debate within the IRS, but the Justice Department brought the criminal case anyway before the IRS had even won a court ruling declaring the shelters to be illegal.
So much for due process, eh?