Palm Beach Gardens, Fla. (Aug. 18, 2004) -- Six executives of a Florida Web-hosting firm are seeking an eight-figure settlement in a lawsuit against Big Four firm KPMG.
KPMG via a spokesman declined to comment on the lawsuit.
The lawsuit by six executives of Best Communications, a Web-hosting company that the plaintiffs sold to Verio in 1999 for $350 million, seeks millions in damages, an attorney for the plaintiffs told WebCPA. "The calculations of damages haven’t been completed, but I can tell you that it's an eight-figure number," said Edward Ricci, managing partner of the Palm Beach Gardens, Fla.-based law firm Ricci-Leopold PA.
Law firm Sidley Austin Brown & Wood and financial services firm Presidio Advisors LLC are also named in the suit, filed in Florida state court. Ricci said that the suit alleges fraud and malpractice against the accounting firm, alleges fraud against the financial services firm, and alleges legal malpractice against the law firm.
According to Ricci, KPMG knew about a $200 million capital gain on the Best Communications sale because the firm was involved in the sale representing the interests of Verio.
"KPMG cold-call solicited these guys because KPMG was in on the deal representing the interests of Verio. They came after them [the plaintiffs] to sell tax shelters," Ricci said. "Based on what we now know from the Senate investigations and the denial of the shelters by the IRS, the analysts at KPMG did not think these things would fly, but the marketing people were intent on getting the commissions, so they sold them anyway. This is another example of the late 1990s pigs at the trough."
Ricci said that his firm discovered that KPMG had agreements in place with PricewaterhouseCoopers under which "in exchange for an opinion letter saying the shelters were viable, KPMG would flip clients to PwC who couldn’t invest in the really high-end tax shelters but who could invest under $10 million."
Ricci alleges that the accounting firm had a similar deal with Sidley Austin, by which the law firm got a "$50,000 kicker every time KPMG used an opinion letter to close a deal." He said that PwC is not named in the lawsuit because his clients didn’t purchase anything from PwC.
Ricci said that all of the defendants have filed routine motions to dismiss and motions to strike. He noted that the case will remain in state court.
"No one has sought to move this into federal court. Huge corporate defendants generally feel that they get a better shake in federal court, but they can't do that here because KPMG and the plaintiffs both maintained operations in Florida and the suit doesn’t involve any federal issues," Ricci said.
-- Melissa Klein Aguilar
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