KPMG Judge Questions Laws, Tactics Used in Corporate Cases

After dealing with a case that involved alleged fraudulent tax shelters marketed by KPMG LLP, U.S. District Judge Lewis A. Kaplan has said the laws governing corporate criminal liability and the tactics used by prosecutors to investigate those cases should be re-examined, the Wall Street Journal reported today, (subscription required) as they appear to give too much power to prosecutors.

According to the Journal Kaplan said at a National Association of Criminal Defense Lawyers seminar that the KPMG case and others bring curiosity over the government using threats of criminal prosecution of companies to gain leverage in investigations of alleged wrongdoing by employees.

In July, Judge Kaplan dismissed charges against 13 former KPMG partners who were accused of setting up illegal tax shelters that allegedly defrauded the government of $2 billion. He ruled that prosecutors violated the defendants’ rights to counsel and fair trials when they forced KPMG to stop paying their legal fees to demonstrate that it was cooperating in the case. Kaplan called the government’s “deliberate interference” with the defendants’ constitutional rights “outrageous and shocking.”

David Stockman, a former Congressman, Reagan aid, and CEO of Collins & Aikman, a large supplier to the auto industry, agrees with Kaplan. Facing allegations of fraud, he has been a vocal critic of tactics used by the Department of Justice. He spoke to Directorship for a piece in our September issue. (See Voodoo Justice and David Stockman.)