An appeals court has affirmed the dismissal of indictments against 13 former KPMG partners and employees in a tax fraud case involving tax shelters set up by the firm for clients.

"We affirm the district court's ruling that the government deprived defendants-appellees of their right to counsel under the Sixth Amendment by causing KPMG to place conditions on the advancement of legal fees to defendants-appellees, and to cap the fees and ultimately end them," wrote the U.S. Court of Appeals for the Second Circuit in a 68-page opinion.

Judge Lewis Kaplan dropped the charges against the 13 defendants in July 2007, saying that prosecutors had pressured KPMG not to pay for the former employees' and partners' legal expenses (see Judge Drops KPMG Charges).

Four other defendants in the case, mainly outside attorneys and investment advisors, still face trial, however, as Judge Kaplan did not believe KPMG would have paid for their defense even without government pressure. One defendant has pleaded guilty. KPMG agreed in 2005 to pay $456 million in an agreement with the government to defer prosecution.

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