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.

Regulation FD requires full disclosure of securities issuers’ communications with analysts for the supposed purpose of protecting the hypothetical ordinary investor. It’s one of those regulations that sounds good on the surface, but fails miserably in practice.
The truth is that Reg FD attempts to regulate statements that perpetuate a myth — i.e., that the securities markets are a level-playing field for the ordinary individual investor. In fact, securities markets are hopelessly rigged against the individual investors, who really have no business attempting to compete in those markets against the pros. Rather, study after study has shown that the individual investor would be much better off simply investing in index funds rather than operating under the myth that the securities markets are fairer for the ordinary investor than, say, playing the slots in Las Vegas.

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Martha Stewart — who was unjustly prosecuted and convicted for allegedly misleading the government about an supposed crime that the government could not prove — finishes the home confinement component of her sentence next week. Ellen Podgor (she of “Busted for Yoga” fame) wonders in this post which of the following will be the legacy of the Stewart case:

1. Tell the truth to the government when questioned.

OR

2. Don’t talk to the government when they seek information.

Given recent developments in other cases, the following alternative might also be added:

3. Waive the attorney-client privilege, offer up others as sacrificial lambs for the government to prosecute, and enter into a deferred prosecution agreement with the government to avoid criminal charges.