KPMG will pay an undisclosed amount to settle a $50 million malpractice lawsuit brought by a former client, computer case and accessory supplier Targus Group International Inc.

Court officials said that the settlement was reached after six months of negotiations between KPMG and Orange County, Calif.-based Targus, a privately held company. Spokesmen for KPMG said that the settlement was made to avoid more costly litigation. The exact terms of the deal will not be released.

Targus sued KPMG in 2003 for failing to discover that the company's chief financial officer had embezzled millions. The executive, William Anthony Lloyd, pleaded guilty to 15 counts of wire fraud in 2001, after embezzling about $40 million from the company while KPMG was Targus' global auditor and business and tax accountant .

To hide the fraud, Lloyd created false entries in Targus' books beginning in 1997, which were audited by KPMG from 1993 through the fall of 2001. Targus' original complaint alleged professional malpractice by KPMG for not detecting the fraud, claiming it lost an additional $10 million in costs associated with the embezzlement, and that unskilled and inexperienced auditors had been assigned to the account.

Last year, KPMG's legal team was sanctioned $30,000 by Orange County Superior Court Judge Geoffrey Glass for withholding documents. KPMG appealed that sanction. As part of the agreements, Glass rescinded his order and KPMG dropped its appeal.

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