U.
S.
District Judge Lewis A.
Kaplan said he dismissed the
charges because prosecutors
blocked the defendants from
putting on a defense. He said
the government coerced KPMG to
limit and then cut off its
payment of the employees' legal
fees, meaning the defendants
were effectively stripped of
their constitutional right to
legal representation in what was
sure to be a long, expensive
trial.
The harshly worded
decision also amounted to a
stinging rebuke of the Justice
Department in its prosecution of
KPMG, a global tax firm.
"Their deliberate
interference with the defendants'
rights was outrageous and
shocking in the constitutional
sense because it was
fundamentally at odds with two
of our most basic constitutional
values — the right to counsel
and the right to fair criminal
proceedings," Kaplan wrote.
"This is intolerable in a
society that holds itself out to
the world as a paragon of
justice," Kaplan said, adding
that he reached his conclusion "only
after pursuing every alternative
short of dismissal and only with
the greatest reluctance."
U.S. Attorney Michael J.
Garcia said the government will
appeal.
"The government respectfully
disagrees with Judge Kaplan as
to whether there was any
constitutional violation in this
case," he said.
A federal appeals court in
May had all but dared Kaplan to
dismiss some cases, saying he
had the authority to toss out
conspiracy and tax evasion
charges if he concluded
prosecutors deprived the workers
of constitutional rights by
pressuring KPMG to stop paying
legal fees.
In an earlier ruling, Kaplan
had ruled that the Justice
Department threatened the
company with indictment and
destruction as it demanded the
firm depart from its prior
practice of paying legal fees
for its workers.
Without that pressure, KPMG
"would have paid every penny,
just as it always had done
before," the judge wrote in
Monday's decision.
Kaplan said the case will
proceed to trial against three
former employees who had not
established that KPMG would have
paid their defense costs. He
also let the case proceed
against two defendants who were
not employed by KPMG and whose
rights were not affected.
KPMG LLP has signed a deal
admitting its role in the tax
shelter scheme. It avoided
criminal prosecution as it
agreed to continue cooperating
and to pay a $456 million fine,
including $128 million in
forfeited fees from sales of the
shelters.
Stanley Arkin, who
represented one of the
defendants whose case was
dismissed, said the case
demonstrated a "complete failure
on the part of the prosecution
to recognize any obligation it
has to be fair and decent."
"I'm happy for my client and
I hope the dismissal of the
indictment sticks," he said.
In his ruling, Kaplan said it
was significant to note that
KPMG recently revealed that it
has been paying the defense
costs of at least 11 of the 16
KPMG defendants in civil cases
relating to the tax shelters.
So far, he said, the
representation has cost the firm
more than $3.4 million.
"The fact that KPMG is paying
civil defense costs, regardless
of the amount, is consistent
with its uniform practice over
many years," Kaplan said.
The judge said that the
defense already had incurred
expenses ranging from $500,000
to $3.6 million, and that a
trial expected to last up to
eight months would raise the
costs to between $7 million and
$24 million by defense estimates
and to at least $3.3 million by
government estimates. The
government had designated 70
witnesses and exhibits totaling
more than 150,000 pages to be
introduced at trial.
