In the sideshow to the main event, KPMG landed its own courtroom blow this week -- filing a claim seeking compensation from some of its former employees indicted in connection with the firm's sale of questionably-legal tax shelters.
Last week, Judge Lewis Kaplan refused a request by the Big Four firm to toss out the request its by 16 former employees for the firm to pay for their defense and said that the matter will go to trial this fall.
The KPMG filing alleges that David Greenberg, a former KPMG West Coast partner, and Robert Pfaff, a former KPMG employee and outside investment adviser, embezzled from the firm through their sale of tax shelters. It also accuses a trio -- former vice chairman Jeffrey Stein, former chief financial officer Richard Rosenthal and former vice chairman of tax services Richard Smith -- of breach of fiduciary duty to the firm and seeks unspecified damages.
The motion, which challenges Judge Kaplan's jurisdiction over the legal fees issue, was filed in the U.S. Court of Appeals for the Second Circuit and requests that the civil trial over whether KPMG should pay for the defendants' fees by postponed indefinitely.
In a June ruling, Judge Kaplan found that federal prosecutors violated the constitutional rights of the KPMG defendants and exerted undue pressure on KPMG when they urged KPMG to cut off the legal fees, even though the defendants had not yet been indicted. The Justice Department appealed that ruling in July.
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