The Largest Tax Fraud Ever… Over?

Wow. And just like that, the largest criminal tax case in the US is over. Well, for now.

Judge Lewis A. Kaplan, of Federal District Court in Manhattan, has dismissed the charges against thirteen defendants (Randy Bickham, Larry DeLap, Jeffrey Eischeid, Steven Gremminger, Carl Hasting, John Lanning, Gregg Ritchie, Richard Rosenthal, Richard Smith, Carol Warley, Mark Watson, Philip Wiesner and Jeffrey Stein) because of alleged constitutional violations by prosecutors. Charges against three defendants (former KPMG partner David Greenberg, and two former KPMG employees, Robert Pfaff and John Larson) still stand since those employees could not prove that KPMG would have paid their legal fees in the first place.

In June, defendants asked the judge to throw out the charges based on allegations that prosecutors overstepped their roles by pressuring KPMG not to pay legal fees for the accused. Judge Kaplan obliged, writing that he made his decision “only with the greatest reluctance.”

The most damaging evidence came in the form of a voice mail from then-KPMG Chief Executive Officer Gene O’Kelly who said any “present or former members of the firm asked to appear will be represented by competent counsel at the firm’s expense.” Later, the firm bowed to pressure from the government to stop paying legal costs for the defendants in the criminal matter; KPMG continued to pay the legal fees for many of the same defendants in civil matters. This, the judge ruled, was a violation of substantive due process even if the government did not intentionally set out to do harm.

It was immediately clear that the government will pursue an appeal. In a statement, Southern District U.S. Attorney Michael Garcia said that the government “respectfully disagrees with Judge Kaplan as to whether there was any constitutional violation in this case…We will continue to pursue appellate review.” And why wouldn’t they? This was their big “we’ll show you” moment and they apparently blew it.

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