Texarkana, Ark. (April 8, 2004) -- Big Four firm KPMG and its former consulting unit, BearingPoint, agreed to separate settlements of $17 million each to settle a class action lawsuit related to the billing of travel-related expenses for their clients.
Under the settlement, approved last week by Circuit Court Judge Kirk Johnson, both firms denied any wrongdoing. The agreement resolves KPMG's and BearingPoint's portion of a class action lawsuit originally filed in Miller County, Ark., in October 2001, which alleged that the two firms, along with PricewaterhouseCoopers, Ernst & Young and the U.S. arm of Cap Gemini Ernst & Young, overcharged clients for costs and expenses paid to third-party travel vendors by allegedly billing clients for the full face amount of costs, while at the same time receiving back-end rebates from vendors through confidential contracts.
The complaint alleged, among other things, that the firms failed adequately to disclose to their clients the existence of the confidential contracts, the existence or receipt of the back-end rebates, or that the invoices provided to the client reflected the full face amount of the vendor cost and didn't reflect any portion of the back-end rebates the firms received. The complaint also alleged that the firms conspired to coordinate their travel departments, to obtain and retain back-end rebates, and to keep the existence and retention of those rebates from their clients. KPMG administered BearingPoint's client-related travel program following its separation from the accounting firm. The case against PwC was settled in March for $54.5 million, while the lawsuit against E&Y and CGEY is continuing, according to Rick Adams, an attorney for the plaintiffs at Patton, Haltom, Roberts, McWilliams & Greer in Texarkana, Texas.
KPMG discontinued the receipt of periodic back-end incentive payments and moved to up-front discounts in 2002. Firm spokesman George Ledwith said KPMG considers the settlement "a fair and reasonable solution to the litigation." "While we firmly believe that the KPMG travel program operated to our clients' substantial benefit and that we would prevail at trial, this settlement will end what promised to be a long and costly litigation," Ledwith said.
KPMG maintains that clients were not charged expenses greater than the amount paid by KPMG travelers. KPMG said that since its inception, its travel program has generated more than $100 million in travel discounts "which were passed directly to clients who are members of the settlement class." It said back-end incentive payments were applied to reduce the firm's overhead costs, keeping its hourly rates lower than they otherwise would have been.
Under the agreement, class members can either get certificates for credit toward their bills or can opt to get 60 percent of the certificates' face value in cash. The plaintiffs’ attorneys can get as much as one-third of the total settlement, plus a separate award of "reasonable costs" of up to $300,000.
"We're pleased with the settlement. It provides a substantial benefit to the client, and we're glad to see this practice stopped," said Adams.
The firms agreed not to accept back-end rebates for five years unless they either disclose the rebate to clients or credit the rebates, directly or indirectly, to clients. They also agreed not to participate for five years with the other defendants in joint benchmarking efforts related to travel matters that involve the disclosure of confidential information to the other defendants.
BearingPoint spokesman John Schneidawind said, "We are pleased that an agreement has been reached that is beneficial to all involved, recognizing that this is a liability we inherited for a program we didn't create. The company was fully reserved for this agreement and we anticipate no impact on current or future earnings."
-- Melissa Klein Aguilar
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