Labels: Bob Yap, Chris Leahy, Ernst and Young, KPMG, Kroll, Lawrence Lai

Labels: class action, KPMG, securities, Xerox

Labels: KPMG, New Century

Labels: KPMG, shareholders, Siemens

Labels: bribery, Debevoise and Plimpton, KPMG, Siemens

Labels: Alberto Gonzales, corporate scandal, DOJ, KPMG, Paul McNulty, tax shelters

Labels: accounting fraud, Enron, KPMG, tax shelters

Labels: bribery, China, KPMG, Siemens

Labels: Bermuda, Diligence LLC, IPOC, KPMG

Labels: bribery, KPMG, Siemens

Labels: KPMG

Labels: bribery, KPMG, money laundering

Labels: bribery, KPMG

SEC hits 4 KPMG execs with record fines

Reuters
February 22, 2006

Four former and current partners of Big Four accounting firm KPMG agreed to pay record-setting fines to settle charges stemming from a 1997-2000 earnings manipulation scheme at copier maker Xerox Corp., U.S. regulators said on Wednesday.

The Securities and Exchange Commission said three of the executives agreed to pay civil penalties and to be suspended from practice before the SEC, with rights to reapply in one to three years, while a fourth partner agreed to be censured...

...The SEC said the four individuals agreeing to settle were Ronald Safran, KPMG engagement partner on the Xerox audit for 1998 and 1999; Michael Conway, senior engagement partner on the audit for 2000; Anthony Dolanski, engagement partner for 1997; and Thomas Yoho, review partner from 1997-2000...

..."The Xerox fraud was a wide-ranging, four-year scheme to defraud investors," said Paul Berger, SEC associate director of enforcement. "The cases brought by the SEC ... have resulted in over $55.2 million in penalties and disgorgement"...

Labels: KPMG

Fractured Class Actions - "Opt-outs" are a growing headache for companies

Business Week
FEBRUARY 27, 2006

...Plaintiffs' attorney William S. Lerach is at the forefront of what has become the latest headache for defendants in securities cases. No hard statistics are available, but opt-outs appear to be a more popular tactic for plaintiffs' lawyers. "There's no doubt that the numbers are up," says Stanford Law School's Joseph A. Grundfest, who monitors the litigation...

...While Lerach has helped hammer out plenty of class-wide deals in his time, he now lauds the virtues of opting out. "Why should investors sit passively by and take a couple cents on the dollar?" he says. "This is an extraordinarily powerful tactical weapon."

The trend is causing concern in courtrooms and boardrooms. On Feb. 8 a federal judge in New Jersey postponed approval of a $195 million settlement between KPMG International and tax shelter investors because more than 60 of the 284 investors had chosen to pursue their own litigation. Cheryl L. Evans, special counsel for the U.S. Chamber Institute for Legal Reform, says opt-outs increase costs for companies. "When you have this fragmentation, companies are paying to settle several cases when it's more efficient to work on one front," she says...

...There's always a risk that breakaway investors could do worse by striking out on their own, but there's enough evidence to the contrary to keep fueling the trend...

Labels: KPMG, Standford Securities Class Action Clearing House

A New Front in KPMG’s Battle With the Feds

Posted by Peter Lattman
February 17, 2006, 3:19 pm

As it battles the government on the tax-shelter front, KPMG is now facing other charges from the SEC that two of its auditors ignored problems that arose during an audit of the U.S. subsidiary of Dutch supermarket chain Ahold. The Wall Street Journal’s Kara Scannell reports that the SEC’s charges were filed in an administrative proceeding alleging the auditors violated the rules of professional conduct when auditing Ahold’s books...

Labels: KPMG

Probe under way into oil scandal company

January 27, 2006
The Royal Gazette
(Bermuda)

Finance Minister Paula Cox said yesterday that an inquiry was under way into the Bermuda company highlighted by the Mid-Ocean News last week as being a sham used to mask the movement of hundreds of millions of dollars of African oil revenues. Ms Cox said she was satisfied that vetting and due diligence procedures carried out by regulatory body the Bermuda Monetary Authority had been properly carried out in the case of Sphynx (Bermuda) Ltd.

A case in London's High Court exposed the company's role as one of a chain of companies controlled by Denis Gokana, president of the Republic of Congo's state oil company the SNPC, which, according to the judgment of Mr. Justice Cooke, were used to hide oil assets from creditors. "While the Ministry does not comment on specific cases, I have no doubt that the vetting in respect of Sphynx (Bermuda) Ltd. was conducted in the usual thorough manner," Ms Cox told the Mid-Ocean News. "As to what will transpire with respect to this company, the Ministry anticipates having the results of an internal inquiry to hand very shortly and will act on any adverse findings as required by law"...Even though Mr. Gokana is a special adviser to the Republic of Congo – rated by watchdog Transparency International as a country of "rampant corruption" – and he was named as Sphynx's principal in incorporation documentation, the company passed the BMA's vetting procedure. Ms Cox argued that the BMA's due diligence process was sound and she described how it worked.

"The vetting and due diligence process is a rigorous and coherent process that is applied to all incorporations by the BMA," she said. "You may recall that KPMG considered that the BMA's vetting of proposed beneficial ownership put it at a high level of compliance that substantially exceeded the minimum requirement. "Let me illustrate, for the benefit of the public. In conducting its due diligence in the matter of company incorporations, the BMA utilises online information sources such as Lexis/Nexis and Dow Jones. "Assistance is sometimes sought from law enforcement services, overseas regulatory authorities and the Commercial Crime Services of the International Chamber of Commerce. "The Lexis/Nexis and Dow Jones checks cover all shareholders and beneficial owners notified to the BMA. Other checks are generally made where the initial check highlights an issue of concern or indicates a need for further investigation." Two local businessman, Trevor Williams and Arthur Jones, both of Consolidated Service Ltd., were hired to act as directors for the company from the time of its incorporation in February 2002 until they resigned in April 2005.

Both denied knowing anything about the $472 million in bogus oil trades that had passed through the company, nor did they even know the location of the company's bank account. Ms Cox also addressed the question of whether directors should be required to take their responsibilities more seriously. She said it was an issue of corporate governance that was a "burning issue" world-wide.

"That is why we have rules and regulations," Ms Cox added. "My general sense is that Bermuda's rules and regulations work fairly well and I noted a report today that attributed a positive remark about Bermuda's regulatory standards to Lord Levene, the current chairman of Lloyd's of London. "Let me conclude by saying that not every scandal requires a government or a regulatory response. To do so would be uneconomic because it would require substantially more resources that would add to the cost of doing business...

Labels: KPMG

Consultant bills triple for city

By: Wire Reports
December 11, 2005
North County Times

Bills for consultants hired to help the city dig out of its financial mess have tripled in some cases, it was reported today. The tab for the top four consultants hired to help San Diego unravel its financial mess has topped $17 million, the San Diego Union-Tribune reported.

Kroll Inc., a New York-based risk management firm, was hired to help get the city's overdue fiscal 2003 audit issued; it has billed the city $5.1 million so far. The New York-based law firm of Willkie, Farr and Gallagher, which works for Kroll, has billed the city $2.7 million so far. Accounting giant KPMG, which is working to complete the 2003 audit, has been authorized to spend $3.1 million for its work.

The Houston-based law firm of Vinson & Elkins, which no longer works for the city, was hired to investigate San Diego's pension system and disclosure practices and to represent the city in front of the Securities and Exchange Commission; it billed $6.3 million for its work over 18 months.

Those figures do not include billing for November, and the firms estimated that they may need additional $9 million to $11 million to finish their investigation of accounting errors and possible fraud, the Union-Tribune reported.

"It's not a way that I would prefer to do business," Mayor Jerry Sanders told the newspaper. "I believe that we should authorize expenditures before we spend the money. I hesitate to step in and stop everything right now. We need to move forward, but we also need to get complete control of this."

City Attorney Michael Aguirre called the spending "out of control. "It's chaotic, and Kroll has done nothing to help other than send us more bills," he said.

The original article appears here. And here's another glowing editorial, via Voice of San Diego.

-- MDT

Labels: KPMG, Kroll

More U.S. SEC book-cooking actions hit Fortune 500

By Kevin Drawbaugh
Reuters
Dec 7, 2005 4:33 PM ET

WASHINGTON - The U.S. Securities and Exchange Commission -- once hopelessly outgunned by big business -- each year is bringing more financial reporting actions involving the Fortune 500 corporate elite, officials said on Wednesday.

In fiscal 2005, 24 percent of SEC financial reporting actions hit Fortune 500 companies, their executives or those they do business with, like auditors and vendors, the SEC said. That proportion was up from 20 percent in 2004, 17 percent in 2003 and just 5 percent in 1998, it said.

"This increase is reflective of increased staff resources over the years, as well as our willingness and ability to take on some of the largest and most complex cases," SEC Enforcement Division Chief Accountant Susan Markel told Reuters.

The figures come at a time when corporate scandals are no longer splashed across the nation's front-pages as they were in 2001-2004 after the Enron scandal. Congressional pressure for greater SEC scrutiny of large companies has eased, as well. But the latest figures show a steady increase in SEC actions against the largest companies and related parties.

For instance, healthcare services group HealthSouth Corp. -- a Fortune 500 company until two years ago -- in June agreed to pay $100 million to settle an SEC action alleging a massive 1996-2002 accounting fraud.

Media giant Time Warner Inc. -- No. 32 on the 2005 Fortune list -- agreed in March to pay $300 million to settle SEC charges that, among other things, from 2000 to 2002 it overstated its AOL online advertising revenues.

Telecommunications group Qwest Communications International Inc. -- No. 154 on the 2005 list -- in October 2004 agreed to a $250-million fine to settle SEC allegations of fraudulently recognizing revenues between 1999 and 2002.

Increased frequency of SEC actions against major companies like these has more to do with the companies themselves than with the SEC, however, said Seth Taube, a partner at the law firm of Baker Botts and a former U.S. prosecutor and SEC attorney.

"In the post-Enron world, both the SEC and the Justice Department reward self-investigation and self-reporting," Taube said, referring to recent statements from both agencies on how companies can win the government's favor by voluntarily coming forward with problems and cooperating with investigators.

"That makes the job of the SEC easier because industry itself untangles the web and presents it neatly to the commission. This is a sign that corporate America has responded" to post-Enron legal reforms, Taube said.

In an example of how the SEC is widening its focus to take in more of what it calls financial reporting "gatekeepers," Big Four accounting firm KPMG in April agreed to pay $22 million to settle SEC charges over its 1997-2000 audits of Xerox Corp. , ranked No. 132 on the Fortune list.

In a similar action, Big Four firm Deloitte & Touche in the same month agreed to pay $50 million to settle with the SEC over past audits of cable company Adelphia Communications , No. 456 on 2002's list.

The SEC brought more than 600 enforcement actions in fiscal 2005. About 29 percent were financial fraud cases, making it the biggest class ahead of others like insider trading. Revenue recognition cases are the most common type of financial fraud.

The original article appears here.

-- MDT

Labels: Department of Justice, Enron, insider trading, KPMG

Labels: KPMG

US watchdog probes CSFB role in Refco

Robert Lea
Evening Standard
November 9, 2005

INVESTMENT bank CSFB is under investigation by the US Securities and Exchange Commission over its role in the doomed float of commodities and futures broker Refco. Refco collapsed last month, just two months after it floated and raised nearly $600m (£345m).

Analysts have predicted that Refco's banking advisers could face claims of up to $200m in the scandal. CSFB was one of three banks that underwrote the Refco flotation. The others were Goldman Sachs and Bank of America. CSFB also handled the $600m sale of Refco junk bonds alongside Bank of America and Deutsche Bank.

New York-based Refco, which also has offices in London, collapsed after it emerged that its former boss, Philip Bennett, had hidden $430m of bad debts at the time of the float.

British-born Bennett was sacked a week before the firm filed for bankruptcy protection. While industry regulators say the collapse of Refco has damaged the derivatives brokerage industry, five bidders have lined up to pick over the broker's carcass, including Man Group, the London-based FTSE 100 hedge fund manager.

Shareholders have already begun legal actions against Refco's advisers including its auditors Grant Thornton. It has emerged that major accountancy firms KPMG and PricewaterhouseCoopers also advised Refco.

Labels: Grant Thornton, KPMG, Refco

Former KPMG settles SEC charges over Xerox audits

October 6, 2005
Reuters

WASHINGTON - A former KPMG partner agreed to pay $100,000 to settle charges he failed to communicate an auditor's warnings that Xerox was engaged in improper accounting several years ago, the U.S. Securities and Exchange Commission said on Thursday.

Joseph Boyle was also suspended from practicing as an accountant on matters before the SEC for one year as part of his settlement, in which he did not admit or deny any wrongdoing, the SEC said.

The original article appears here.

-- MDT

Labels: KPMG

Breeden, who has overseen scandal-plagued firms, seeks to profit from corporate cleanups

September 13, 2005
CNN/Money

NEW YORK (CNN/Money) - Richard Breeden, the former chairman of the Securities and Exchange Commission, is reportedly set to start a hedge fund that will focus on making money by pushing companies to improve their corporate governance practices.

The New York Times reported Tuesday that Breeden is seeking to raise between $500 million and $1 billion for the fund, which is to start Jan. 1. It is expected to hold large positions in the companies in which it invests, holding six to 12 investments at a time, according to marketing documents seen by the paper. The paper reports the fund will take an activist role pushing for corporate governance reforms.

Breeden has never headed an investment fund, but he has much experience pushing for reforms at the top of major companies. In addition to his time at the SEC, was appointed by a bankruptcy court to be monitor of WorldCom, now MCI (Research), the telecom that saw an accounting scandal cause the largest bankruptcy in history.

He was recently named corporate monitor for KPMG, the accounting firm that recently reached a $456 million settlement with federal prosecutors investigating the firm's role in questionable tax shelters. Breeden declined to comment on his investment plans Monday when contacted by the paper, though he did indicate that he would see through his role at KPMG.

The paper reports that Breeden Partners will get a 2 percent management fee and take 20 percent of profits, according to the marketing documents. That would mean that if the firm raises $500 million it would be paid at least $10 million, and significantly more if it able to make money on its investments.

While some hedge fund managers take a high-profile role in pushing companies to improve performances, Breeden's fund will "seek quiet reform where possible and become as actively involved as necessary to achieve desired transformations and prevent value-diminishing corporate actions," according to the marketing materials.

Labels: KPMG

KPMG Prosecutor Says at Least 12 More Face Indictment

Bloomberg
Sept. 6 2005
By David Glovin

The prosecutor handling the case against eight former KPMG LLP executives charged with fraud stemming from the sale of abusive tax shelters said ``at least a dozen'' more people will be indicted. "We do plan to add additional defendants, at least a dozen,'' Assistant U.S. Attorney Justin Weddle said in Manhattan federal court today, where the former executives entered not guilty pleas. KPMG spokesman Tom Fitzgerald declined to comment. A former lawyer with Chicago-based Sidley Austin Brown & Wood LLP also pleaded innocent.

Weddle said a new indictment could be filed within three months. He said it would include new tax evasion charges against the existing defendants. U.S. District Judge Lewis Kaplan, who's presiding over the case, urged Weddle to charge the additional defendants by Oct. 17. Kaplan scheduled a trial for May 1.

Last week, KPMG, the fourth-largest U.S. accounting firm, agreed to pay $456 million to avoid prosecution over its sale of abusive tax shelters, ending the largest criminal tax case ever filed. The firm, which earned about $115 million in fees from the shelters, admitted that they generated at least $11.2 billion in phony losses and cost the U.S. government at least $2.5 billion in revenue.

Under the deferred prosecution agreement approved by U.S. District Judge Loretta Preska, KPMG must submit to oversight by an independent monitor for three years. KPMG admitted it committed fraud in designing the shelters sold to 601 wealthy clients and said it tried to conceal the shelters from the Internal Revenue Service.

20 Defendants

Charges will be dropped if the firm complies with the agreement, which remains in force through the end of 2006. Failure to comply would expose KPMG to criminal prosecution. The eight former KPMG executives named in the indictment unsealed on Aug. 29 are Jeffrey Stein, John Lanning, Richard Smith, Jeffrey Eischeid, Philip Wiesner, John Larson, Robert Pfaff and Mark Watson. Also indicted was attorney Raymond J. Ruble, a former partner at Sidley Austin.

Defense lawyers facing the prospect of a criminal trial involving more than 20 defendants said at today's hearing that they may file legal requests seeking more than one trial against smaller groups of former executives. Smith's lawyer, Robert Fink, said he would ask Kaplan to dismiss the charges because they're too vague. "You can't experiment criminally with what's unclear civilly,'' he said after the hearing.

Kaplan said he might require separate trials if the government returns a new indictment after Oct. 17. Prosecutors need to simplify the case, he said, warning that a prolonged tax trial may confuse and bore jurors. "The name of the game is to boil it down and move it,'' Kaplan said. "The idea of a three- or four-month tax trial -- well, it's a daunting prospect to the people who are going to get jury notices.''

The former executives were freed on bonds ranging from $300,000 to $3.5 million. Weddle said Stein, KPMG's former deputy chairman, and Smith, a senior official in the tax department, were leaders of the scheme and face 25 years in prison if they're convicted.

Labels: KPMG

Former KPMG officials indicted: Eight accused in questionable sales of tax shelters

By Jonanthan D. Glater
New York Times

Eight former partners of KPMG, the giant accounting firm under investigation for its role in creating and selling questionable tax shelters, were named by federal prosecutors in an indictment unsealed Monday in federal court in Manhattan. The indictment is the long-anticipated next step in prosecutors' broadening investigation into shelters that from 1996 through 2002 helped wealthy investors evade billions of dollars in taxes. It is also strong evidence that the government is prepared to pursue the accountants, financial advisers, lawyers and bankers who had a hand in the transactions.

KPMG was mindful of how criminal charges wrecked competitor Arthur Andersen in an Enron-related accounting scandal. Some 28,000 workers had to find other jobs after Andersen was convicted of destroying Enron-related documents, which forced it to surrender its accounting license and stop conducting public audits. Avoiding the loss of jobs that followed Andersen's conviction was a factor in the government's decision not to prosecute KPMG, authorities said.

"The conviction of an organization can affect ordinary workers," Attorney General Alberto Gonzales said. "Justice must serve offenders and victims as well as the economy and the general public." The Supreme Court reversed Arthur Andersen's conviction earlier this year. Monday's indictment refers to unnamed foreign banks and other entities, which suggests that the government may file other criminal charges at some later date. While the banks are not identified, a 2003 report by a Senate subcommittee said that Deutsche Bank, UBS of Switzerland and HVB of Germany among others had roles in the questionable KPMG shelters. And earlier this month, a former executive in the New York office of HVB pleaded guilty to conspiracy to commit tax fraud and is presumably assisting prosecutors in their investigation.

The indictment, which names an outside lawyer along with the former partners, accuses the nine of conspiring to defraud the government by concocting "tax-shelter transactions and false and fraudulent factual scenarios to support them"; by preparing "false and fraudulent documents to deceive" the Internal Revenue Service; by preparing "false and fraudulent" tax returns that included the false tax losses; and taking steps to conceal the shelters from the IRS.

The former KPMG partners named in the indictment are: Jeffrey Stein, John Lanning, Richard Smith, Jeffrey Eischeid, Philip Wiesner, John Larson, Robert Pfaff and Mark Watson. The lawyer is Raymond Ruble. The arraignment of the nine men is scheduled for Sept. 6. Nearly all the lawyers representing the defendants and who could be reached for comment Monday said their clients intended to fight the charges vigorously.

The indictment was unsealed as a federal judge approved a $456 million settlement between KPMG and the Justice Department that allows the firm to avoid a criminal indictment, which would have been a near-certain death knell for the firm. As part of a deferred prosecution agreement that remains in effect until Dec. 31, 2006, the firm admitted wrongdoing, accepted an outside monitor, and pledged to limit its tax practice.

"The message we want to send is that if you engage in fraud, if you participate in providing false statements, you're going to be prosecuted," Gonzales said. "We want to be very, very clear: There is no company that is too big or too important an industry that will escape prosecution if they in fact engage in wrongdoing."

The agreement allows KPMG to begin to put the criminal investigation, which has been under way for more than a year and a half, behind the firm, said Timothy Flynn, KPMG's chairman and chief executive. "We regret the past tax practices that were the subject of the investigation," Flynn said in a prepared statement. But for individual former partners, the ordeal begins now in earnest — and under the terms of the agreement with prosecutors, the firm is allied against them. What strategy the partners may pursue — and to what extent they will coordinate their joint defense — is not clear.

According to the indictment, one of the defendants, Eischeid, gave "false, misleading and evasive" testimony to the IRS in 2002 about certain tax shelters. The indictment cited an e-mail message from one KPMG partner who wrote that the firm's general counsel and outside lawyer "determined that the best strategy was 'the less said the better.' " As a result, the e-mail continued, "the record will reflect repeated 'I don't knows,' 'I don't recalls,' and 'I was out of the loops' — the rope-a-dope/Enron defense."

As part of its agreement with the government, KPMG issued a strongly worded acknowledgment of wrongdoing, which can be used by prosecutors in their criminal case against the individual partners, as well as against the firm in the event it violates the terms of the deferred prosecution agreement. Lawyers for the former partners criticized the firm's statement as meaningless. "The government held a gun to KPMG's head and said, 'Say what we want or we will put you out of business,' " said Robert Hotz Jr., who represents Lanning.

Labels: Department of Justice, Enron, KPMG, New York AG

KPMG Will Pay $456 Mln Fine to Avoid Prosecution, People Say

by Ryan J. Donmoyer
Bloomberg
August 27, 2005

KPMG LLP will pay $456 million in fines under an agreement with federal authorities to avoid prosecution by the U.S. government for selling abusive tax shelters, people familiar with the matter said.

The settlement, under negotiation since June, will be unveiled in Washington on Aug. 29, the people said. The announcement may also include indictments of as many as a dozen former partners of the accounting firm, they said.

The agreement is the government's biggest victory in its fight against tax shelters that proliferated in the 1990s. Avoiding criminal prosecution may enable KPMG International's U.S. arm avoid an exodus of clients, which led to the closing of Arthur Andersen LLP after its indictment for obstruction in 2002. The deal marks a surrender for KPMG, which fought the government after rivals Ernst & Young LLP and PricewaterhouseCoopers LLP paid fines of as much as $20 million.

``KPMG elected to fight to the bitter end, and then they discovered what the bitter end was and decided, `Hey, let's not do that,''' said former IRS Commissioner Donald C. Alexander, now a partner with Akin, Gump, Strauss, Hauer & Feld, a law firm in Washington.

Under the terms of the deferred-prosecution agreement, KPMG will pay the $456 million fine in three installments, the people familiar with the matter said. The first installment, due next week, will be about half the amount. The firm will pay $100 million in June 2006 and another $100 million in December 2006.

Retraining Advisers

Attorney General Alberto Gonzales, Internal Revenue Service Commissioner Mark Everson and U.S. Attorney David Kelley will announce the settlement, the people said. U.S. District Judge Loretta A. Preska, who must approve the agreement, will hold a hearing earlier in New York.

KPMG also agreed to not take on any new tax clients for 30 days while it retrains its advisers on new standards, the people said. Under the agreement, all tax opinions given to clients must be likely to survive an IRS audit, the people said. The previous standard required that the advice be ``more likely than not'' to win IRS approval.

The New York Times said earlier today that the amount of the fine, previously reported by Bloomberg News as more than $450 million, would be $456 million.

Former Securities and Exchange Commission Chairman Richard Breeden, 55, will monitor the firm's compliance with the agreement, the people said. If the firm meets the terms of the deal, the deferred criminal charges against it will be dismissed in December 2006, the people said.

Independent Monitor

Breeden, who was appointed to the SEC by President George H.W. Bush in 1989 and served until 1993, didn't return calls for comment. KPMG spokesman George Ledwith declined to comment. Herb Hadad, a spokesman for the U.S. Attorney's Office in Manhattan, also declined to comment.

Arthur Andersen lost most of its partners and clients after being accused by the Justice Department of obstructing an investigation into its audit client, Enron Corp., the now bankrupt energy trader. Andersen's conviction, overturned by the U.S. Supreme Court in May, came too late to resurrect it and reduced the number of large accounting firms to four.

Deferred prosecutions have been on the rise since the Enron bankruptcy in December 2001 kicked off a wave of investigations into corporate fraud. Computer Associates International Inc., Bristol-Myers Squibb Co., Time Warner Inc. and American International Group Inc. made similar arrangements to avoid criminal charges in the last two years.

KPMG has about 1,600 partners and reviews the books of more than 1,000 companies including General Electric Co. and Pfizer Inc.

`Full Responsibility'

In a June statement, KPMG said that the firm has stopped selling abusive tax shelters and that it took ``full responsibility for the unlawful conduct by former KPMG partners'' from 1996-2002.

The KPMG shelters were sold to wealthy individuals such as former Treasury Secretary William Simon Sr., the late stock car racing champion Dale Earnhardt and Thomas Frist III, the brother of Senate Majority Leader Bill Frist. None of the individuals has been accused of wrongdoing.

The U.S. Senate's Governmental Affairs Permanent Subcommittee on Investigations concluded in November 2003 that accounting firms sold illegal shelters because the penalties for doing so were minuscule compared with the fees they earned.

Labels: Department of Justice, Enron, KPMG, New York AG

U.S. Department of Justice Corporate Fraud Task Force Fact Sheet

8/29/2005 2:29:00 PM

To: National Desk

Contact: U.S. Department of Justice, 202-514-2007 or TDD 202-514-1888

WASHINGTON, Aug. 29 /U.S. Newswire/ -- The following is a fact sheet released today by the U.S. Department of Justice:

FACT SHEET: CORPORATE FRAUD TASK FORCE

Since its creation by Executive Order in July 2002, the Corporate Fraud Task Force (CFTF) has spearheaded the Administration's effort to prosecute corporate malfeasance, protect the jobs of hard-working Americans, and restore confidence to the marketplace. Through the coordinated efforts of several federal agencies, the CFTF is sending a clear message that criminal activities in the corporate world will be swiftly and decisively prosecuted. By acting to deter fraud, the Task Force is also helping to restore shareholder and employee trust, and demonstrating to the American people that the vast majority of corporate leaders are still honest and hardworking. With today's deferred prosecution agreement with KPMG LLP, and the indictment of nine former employees and individuals associated with KPMG-as well as one former partner of a prominent law firm-the Justice Department furthers its commitment to the American worker, investor, and honest taxpayers.

Since its inception, the Task Force has contributed to the following:

-- Securing over 700 corporate fraud convictions;

-- Convicting over 100 corporate CEOs and presidents with some type of corporate fraud crime in connection with close to 600 filed cases;

-- Convicting more than 80 vice-presidents;

-- Convicting more than 30 CFOs; and

-- Charging more than 1,300 defendants, including the indictment announced today.

-- From June 1, 2002 through June 30, 2005, more than $266 million has been collected in restitution, fines, and forfeitures from corporate fraud convictions.

-- Significant cases prosecuted criminally include, among others: Worldcom Chief Executive Officer Bernard Ebbers, convicted on fraud charges in the Southern District of New York; a deferred prosecution agreement with America Online in the Eastern District of Virginia; Adelphia Chief Executive Officer John Rigas, convicted on charges of securities fraud, bank fraud, and conspiracy in the Southern District of New York; a deferred prosecution agreement with Computer Associates, prosecuted in the Eastern District of New York.

-- The Justice Department's Enron Task Force has obtained charges against 33 Enron defendants, including 21 former Enron executives, obtained the convictions of 11 Enron defendants, including its former CFO and treasurer, and seized over $162 million for the benefit of victims of the frauds at Enron.

-- Federal prosecutors working with the CFTF have entered into a variety of agreements with corporations regarding allegations of fraudulent criminal activity, including guilty plea agreements, deferred prosecution agreements, and non-prosecution agreements. These agreements, such as the deferred prosecution agreement with KPMG today, ensure the company admits its conduct, agrees to real reforms-including full cooperation in ongoing investigations-and the establishment of internal controls to prevent criminal conduct from re-occurring. In cases where the company fails to agree to these conditions, or fails to abide by the terms of such an agreement, the Department of Justice will not hesitate to prosecute the company.

The work of the CFTF is ongoing. The Task Force will continue to successfully:

-- Restore confidence to the marketplace;

-- Provide fair and accurate information to the investing public;

-- Reward shareholder and employee trust; and

-- Protect jobs and savings of hard-working Americans.

Labels: Department of Justice, Enron, KPMG

KPMG in talks

By Andrew Parker in New York
The Financial Times
August 22/23 2005

KPMG is in talks with a leading law firm that could result in compensation for former US clients who were sold two of its flagship tax avoidance schemes. But the accounting firm has also signalled it will aggressively defend itself, and highlight the conduct of others, if clients insist on going to court to seek damages after the US tax authorities objected to the schemes.

Since July last year, KPMG has held talks with Milberg Weiss Bershad & Schulman, a law firm that specialises in class action lawsuits, about a “global settlement” of claims arising from sales of avoidance schemes known as Bond Linked Issue Premium Structure (Blips) and Offshore Portfolio Investment Strategy (Opis).

The tax avoidance industry was highly lucrative until the Bush administration launched a crackdown in 2001. A report by staff on the Senate permanent subcommittee on investigations, published in 2003, found that KPMG generated fees of $124m from four avoidance schemes sold to hundreds of people between 1996 and 2001, including Blips and Opis.

Blips and Opis were classified as “potentially abusive tax shelters” by the Internal Revenue Service in 2000 and 2001, after which KPMG stopped marketing them. The IRS probed people's use of the avoidance schemes, and some face demands for tax payments worth millions of dollars, as well as fines. Meanwhile, David Kelley, the US attorney for the southern district of New York, has been leading a criminal investigation into KPMG's tax work.

The talks between KPMG and Milberg Weiss also involve Sidley Austin Brown & Wood, a law firm. Brown & Wood, a predecessor law firm to Sidley, earned fees of $23m by providing letters to KPMG clients that said its avoidance schemes could withstand scrutiny by the IRS, according to an updated version of the Senate report published in February.

Milberg Weiss alleged in a lawsuit filed in June that KPMG and Sidley “fraudulently misrepresented” Blips and Opis as legitimate investment strategies because they knew the avoidance schemes were “abusive tax shelters that would not pass IRS scrutiny”. Melvyn Weiss, senior partner at Milberg Weiss, said most of the terms of a settlement with KPMG and Sidley were in place although no agreement had been signed. Milberg Weiss is seeking more than $200m from KPMG and Sidley. The intensive nature of the settlement talks has been underlined by the use of two retired judges to act as mediators.

Efforts by former clients of KPMG who bought its tax avoidance products to secure compensation may have been assisted by a statement made by the firm on June 16. KPMG's US business, after outlining the justice department's investigation of its tax services offered between 1996 and 2002, said: “KPMG takes full responsibility for the unlawful conduct by former KPMG partners during that period, and we deeply regret that it occurred.”

However, KPMG, as well as holding talks with Milberg Weiss about a “global settlement”, has signalled it will strongly defend itself if clients insist on going to court. For example, KPMG last month raised the stakes in a lawsuit brought by former clients in Texas who used the Blips avoidance product.

The 2003 Senate report said Blips was designed to generate artificial losses to offset against other income on tax returns. KPMG alleged in court documents that the Texas clients, Cal and Cary McNair, claimed losses resulting from Blips in their 1999 tax returns, which were filed after the IRS had objected to the avoidance product. It also said that a KPMG partner, after the IRS ruling on Blips, had advised the clients to consult lawyers about whether to include losses resulting from the product on their 1999 returns.

To limit the potential impact of the lawsuit, KPMG said if it is found liable to pay damages to the Texas clients then law firms that allegedly advised them on Blips should also contribute. The firms, Andrews Kurth, and Holland, Johns, Schwartz & Penny, were not available for comment.

Paul Dobrowski, a partner at Dobrowski, the law firm representing the McNair brothers in their lawsuit against KPMG, said his clients had acted appropriately. “KPMG assured my clients that the positions they adopted in their 1999 tax returns were appropriate, both before and after they filed them,” he said.

KPMG's US business said: “We look forward to resclving the civil litigation expeditiously and with full and fair accountability.”

Labels: Department of Justice, KPMG

SEC ponders Big Four minus one: report

August 11, 2005: 9:07 AM EDT

NEW YORK - Securities and Exchange Commission officials are discussing possible steps in the event of a collapse of one of the Big Four accounting firms, The Wall Street Journal reported Wednesday.

The talks, which began after the demise of Arthur Andersen three years ago, have taken on greater importance in the wake of news that the Justice Department may indict KPMG LLP for allegedly peddling illegal tax shelters.

The SEC is considering making it easier for companies to switch auditors in the event KPMG or another Big Four firm is indicted or collapses, the Journal said, but no formal plan has been approved. According to the newspaper, the SEC is trying to put a contingency plan in place to aid companies that would need to move quickly to find a replacement auditor.

Any plan would have to be approved by SEC Chairman Christopher Cox, the newspaper said. "We have scenarios in place for any eventuality that could come out of this, and we're prepared to deal with it," an SEC official said, according to the newspaper.

The Big Four -- KPMG, Deloitte & Touche LLP, Ernst & Young LLP and PricewaterhouseCoopers LLP -- audited more than 78 percent of public companies in the U.S., according to a report cited by the newspaper.

Labels: Department of Justice, Enron, KPMG

Labels: Department of Justice, KPMG

Cases Referred in KPMG Case

August 05, 2005
AccountingWEB.com

The investigation and possible prosecution of KPMG has been the focus of a larger investigation by the Department of Justice (DOJ) into abusive tax shelters sold to corporate taxpayers and wealthy individuals by accounting firms, banks, and law firms. There are now signs that DOJ is working toward a decision.

DOJ found that KPMG sold four types of overly aggressive tax shelters to over 350 people between 1997 and 2001 that brought in $214 million in fees according to the Senate Subcommittee on Investigations. These shelters cost the Government around $1.4 billion in unpaid taxes.

The firm has been cooperating with the government and issued a statement in June implicating their “wrongful conduct” and “full responsibility” by their former partners. They also pledged further cooperation in the case. They have initiated corporate reforms to ensure this situation will not occur again.

The Washington Post has reported that up to 20 ex-KPMG partners may be facing prosecution for their roles in selling the shelters. Other firms implicated in government documents include a law firm now called Sidley Austin Brown & Wood and Deutsche Bank according to the New York Times.

DOJ officials have authorized David Kelley, the U.S. attorney for the Southern District of New York, to negotiate a deal with KPMG that will not drive the firm out of business. The DOJ does not want to repeat the collapse of Arthur Anderson that destablized the industry in 2002. Arthur Anderson employed some 85,000 people worldwide.

If the firm were to negotiate a settlement instead of receiving an indictment to resolve the case as well as prosecution of the ex-KPMG executives, concerns over their clients abandoning the firm might be avoided. Significant legal exposure from civil suits by investors and shareholders might also be avoided.

“The Justice Department’s issue is do we really want to take this down to the Big Three or is there some way short of destroying this company that we can get some comfort that this going to be recurring in the future?” said David Gourevitch, a former prosecutor and now in private practice in New York.

The outcome of this case may come down to a large fine, changes in their corporate culture, and oversight. The firm continues to negotiate with the Government to resolve this case. If these negotiations fail, the Government may go for an corporate indictment. The prosecution of this case is still out except for the referral of potential cases against several former KPMG partners and other individuals to the DOJ. No indictments have been passed down.

Labels: Department of Justice, KPMG

Bush Administration Seeks Settlement in KPMG Case, People Say

August 3 , 2005
By Robert Schmidt
Bloomberg

The Bush administration has instructed federal prosecutors to seek a settlement with KPMG LLP over its sale of tax shelters to avoid criminal charges that could drive the accounting firm out of business, people familiar with the case said. The Justice Department in Washington directed David Kelley, the U.S. attorney for the Southern District of New York, to negotiate a deal, said the people, who requested anonymity. One issue is the size of the fine the Big Four firm must pay, with prosecutors demanding as much as $500 million, the people said.

A settlement that avoids criminal charges would ease concerns in the Justice Department and among securities regulators that KPMG's collapse would eliminate thousands of jobs and reduce the number of major accounting firms to three. Hundreds of large companies would be left, at least temporarily, without an auditor if KPMG disappears. "KPMG could survive a huge, unprecedented fine,'' said Paul R. Brown, an accounting professor at New York University's Stern School of Business. "It will position a cloud over this firm for probably 10 years, but it will not put it out of business.''

If the talks between Kelley and KPMG break down, the firm could still be indicted, the people familiar with the discussions said. KPMG may face charges it obstructed justice, sold abusive tax shelters to rich clients and misled investigators from the Internal Revenue Service. KPMG has been negotiating with officials in Washington to help resolve the case, which is being handled out of Kelley's office in Manhattan. The firm acknowledged the threat of an indictment in June and apologized for what it said was unlawful conduct by former partners. Justice Department spokesman Bryan Sierra declined to comment...

Labels: KPMG

Ex-KPMG partners may face charges

AP Newswire
August 3, 2005

NEW YORK (AP) — As many as 20 former partners at accounting firm KPMG have been told by federal prosecutors that they could face criminal charges for their roles in selling questionable tax shelters in the 1990s, according to a published report.

Prosecutors have not yet decided if they will charge the firm itself with any crimes, but currently are focusing on individual executives who were involved in the tax shelters, including some members of KPMG's senior management, according to a report Wednesday in The Washington Post. The report cited sources who spoke on the condition of anonymity because of the "delicate stage of the investigation."

The shelters in question have names such as OPIS, FLIPS and BLIPS, the newspaper said, and were used by wealthy clients as ways to report losses on their tax returns in order to offset big gains.

Among those being probed are New York-based KPMG's former deputy chairman and the former heads of its tax services unit and its Washington-based national tax practice, the Post reported, without naming them. Many of the KPMG partners said they had not broken the law but only exploited loopholes in the tax code, according to the Post.

The investigation has been underway for several years but a resolution could be just weeks away, according to the newspaper.

Federal prosecutors in New York recommended earlier this year that the firm face criminal charges, but senior officials in the Justice Department were worried about the possibility of another big accounting firm collapsing after the 2002 fall of former Enron auditor Arthur Andersen LLP, the Post said.

In response to the report, KPMG spokesman Tom Fitzgerald on Wednesday referred to a statement released by the company on June 16 in which it said it was cooperating with the probe and "takes full responsibility for the unlawful conduct by former KPMG partners during that period (1996-2002), and we deeply regret that it occurred."

The statement said KPMG does not provide the shelters any more, has introduced reforms within the company to ensure high ethical standards and "put in place a process to ensure that those responsible for wrongdoing have been separated from the firm."

The original article appears here.

KPMG also has a few other irons in the fire, including a $65 million pension deficit, as described in this Financial Times article (subscrip. required).

Another interesting article appearing in the venerable FT that you actually CAN read without a subscription is this one, which describes how new international accounting standards (the International Financial Reporting Standards to be exact) are going to negatively impact the big four accounting firms because of the way they the standards address the firm's base capital. The FT can explain the sitch a lot better than The Daily Caveat..cue the bloc quote:

Under IFRS, the capital paid in by firms' partners, the bedrock of their finances, is likely to be reclassified as long-term debt, which will seem to make assets vanish and liabilities soar. The change will put the big four in the uncomfortable position of having to play down the significance of accounting changes that critics have accused them of playing up to generate business. Partner capital is expected to be reclassified to recognise the fact that when partners leave the firms they are repaid the funds they put in upon joining. The change, however, would have no bearing on the big four's financial strength, profitability or ability to pay creditors.

-- MDT

Labels: Enron, KPMG

SEC Investigating BearingPoint

Stephen Taub
April 22, 2005

The Securities and Exchange Commission has launched an informal investigation of BearingPoint, according to the company formerly known as KPMG Consulting.

The consultancy stated that the SEC staff had requested documents concerning internal control deficiencies identified on March 18, prior restatements, and other matters, and that it is cooperating in the inquiry.

Labels: KPMG