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| WSJ: KPMG Facing Possible Criminal Charges |
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Thursday, June 16 2005 @ 11:54 AM EDT
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Remember when SCO and KPMG recently came to a parting of the ways when KPMG resigned the account but no one knew why? I can't speculate if this is connected or not, but it's news about KPMG I thought you'd want to know. The Wall Street Journal and the UK's Times Online are reporting that KPMG are facing criminal charges, obstructing justice ("allegedly misleading Revenue investigators and concealing evidence") and selling "abusive" tax shelters and are currently negotiating with Federal prosecutors:
Citing lawyers briefed on the case, the Journal claims that the issue of whether to charge KPMG has sparked a debate among top officials at the US Department of Justice. The newspaper reported this morning that indicting KPMG would put future of the company at risk.
The threat of these criminal charges could persuade KPMG to pay "substantial financial penalties" in settlement, the Journal wrote. They paid $22.5 million to the SEC in April, to settle charges it allowed Xerox to "manipulate its accounts." And last year KPMG was censured by the SEC for "improper professional conduct" in connection with work it did for Gemstar-TV Guide International Inc. According to the WSJ, negotiations are typical in such cases: Under unwritten Justice Department policy, companies facing possible criminal charges often are permitted to plead their case to higher-ups in the department. These officials are expected to take into account the strength of evidence in the case -- the culmination of a long-running investigation -- and any mitigating factors, as well as broader policy issues posed by the possible loss of the firm. . . .
To avoid the possible loss of another big accounting firm, Justice Department options include seeking some other resolution of the case. One possibility is the deferred-prosecution agreement, which has become increasingly common in the past year and often is preceded by threats to seek indictment of a firm. Under these deals, a company avoids a criminal trial in exchange for agreeing to extraordinary oversight, sweeping changes in business practices and often a big fine.
William Mateja, a former Justice Department official who coordinated white-collar-crime enforcement, said prosecutors must often weigh factors beyond the evidence. "In light of the Andersen case, the department is going to be extremely careful about any decision to indict a company like KPMG, realizing the huge ramifications -- the practical, economic and social fallout." If you are a WSJ subscriber, you can read an article explaining deferred prosecution agreements and you can read the KPMG statement.
Out of fairness to them, I will tell you what it says: that the Department of Justice has been investigating certain tax services offered by the firm during the years 1996-2002, as part of "a larger tax shelter investigation into the role of accounting firms, law firms, large banks and taxpayers who participated in the development, promotion and implementation of tax shelters." KPMG no longer offers the services, they've "separated from the firm" those that did it, and they have made other reforms. "KPMG takes full responsibility for the unlawful conduct by former KPMG partners during that period, and we deeply regret that it occurred." They remain in discussions with the DOJ and "continue to cooperate fully in its investigation." In one of those quirks of fate, the KPMG statement page has a Xerox ad.
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| Authored by: overshoot on Thursday, June 16 2005 @ 12:20 PM EDT |
| All the standard reminders apply. [ Reply to This | # ]
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| Authored by: overshoot on Thursday, June 16 2005 @ 12:24 PM EDT |
| It sounds like KPMG is doing some serious housecleaning in response to a session
with the clue crew.
One is led to wonder if distance from obvious scams,
even if the scam isn't directly related to accounting, is part of the program? [ Reply to This | # ]
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| Authored by: kawabago on Thursday, June 16 2005 @ 12:41 PM EDT |
I wonder who will be next as the house of cards SCO built degenerates into a
leper colony?
---
AYNIL[ Reply to This | # ]
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| Authored by: Jude on Thursday, June 16 2005 @ 12:47 PM EDT |
There has been a lot of news about companies negotiating settlements with the
SEC and paying a lot of money not to be prosecuted.
It seems to me that such settlements are nothing more than legalized bribery:
The bad guy(s) pay the cop(s) some money in return for being left alone. There
is no prosecution, no verdict, and no admission of guilt, so if the bad guy(s)
do it again the courts don't treat them as repeat offenders.
I think something's badly wrong with this arrangement.
[ Reply to This | # ]
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- Settlements - Authored by: capt.Hij on Thursday, June 16 2005 @ 01:08 PM EDT
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- Wells letters and three time losers - Authored by: Anonymous on Thursday, June 16 2005 @ 03:50 PM EDT
- Maybe it's not bribery.. - Authored by: Anonymous on Thursday, June 16 2005 @ 07:32 PM EDT
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| Authored by: rsteinmetz70112 on Thursday, June 16 2005 @ 12:56 PM EDT |
The Tax Shelter investigation by the IRS has been going on for a long time. I
doubt it has anything to do with SCO.
For people with very high incomes accounting firms would devise elaborate tax
shelters. They would then usually get someone one to write a letter saying they
were legal and collect a large fee. Often the IRS would come along later and
decide they were tax evasion and charge penalties and interest in addition to
the back taxes. The firms peddling these things would often say 'sorry' it was
your risk, we have a new better one are you interested? The accounting firms got
sued and eventually lost.
---
Rsteinmetz
"I could be wrong now, but I don't think so."
Randy Newman - The Title Theme from Monk[ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 12:57 PM EDT |
KPMG is a big firm with franchises everywhere, big staff without much central
control. So this was a former problem. Probably it was the reason why KPMG ran
far away from SCO. They didn't want to seem repeating crime :)
[ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 01:41 PM EDT |
This potential indictment has precious little to do with SCO in particular. It
has been well known in the accounting field that KPMG was promoting criminal tax
shelters for a while (8-10 yrs.) This is the chickens coming home to roost.
SCO is merely one of the casualties of the housecleaning at KPMG. KPMG is
getting rid of all of their high-risk clients so they don't get caught up in
another PR/legal fiasco. In my personal opinion as a CPA I am glad to see the
threat of criminal indictment and pray that the justice department has the guts
to see it through. KPMG needs to fail as an organization so the public
perceives that there are significant penalties to criminal behavior even on the
part of large concerns. The top people need to go to jail and the workers will
go on to other firms that will get the work.[ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 01:41 PM EDT |
For a very different perspective from PJs, check out this solid
blog post re: KPMG from a lawyer who regularly blogs about these types of
white-collar crimes --
http://blog.kir.com/archives/0020
87.asp
"KPMG = Arthur Andersen?" by Longtime Houston attorney Tom
Kirkendall
[ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 02:07 PM EDT |
| Richard Rahn Has an article at Declan McCullagh's Politech defending such
Corporate behaviour.
politech
Blan
kbill [ Reply to This | # ]
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| Authored by: sjgibbs on Thursday, June 16 2005 @ 02:45 PM EDT |
"To avoid the possible loss of another big accounting firm, Justice
Department options include seeking some other resolution of the case."
What is so bad about having small firms that you (America) need 'extraordinary'
action to protect one big one?
SJG - UK,
Happy small firm user[ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 02:59 PM EDT |
I found this funny, ans so apropos:
crap·shoot
n. Slang
A risky enterprise.
SCO seems like a crapshoot, strictly by definition.[ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 03:21 PM EDT |
all part of modern targeted advertising, you are reading an article about Xerox
therefore you might be in the market for a new copier![ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 03:30 PM EDT |
| All your audits are belong to us.
Oops, wrong blog. [ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 03:33 PM EDT |
| Get your tyypos! Get yuor hot freesh tipos! [ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 03:51 PM EDT |
Once worked for a small manufacturing company. You'd recognize the name.
They had a mainframe system, paid for, and a number of mainframe sysprogs who
knew the way the system worked, and who were either loyal or trapped, i.e.
couldn't quit because changing medical insurance would lead to big uncovered
expenses.
At KPMG's prodding, to become Y2K-proof, they replaced the mainframe with a SAP
R/3 implementation on Unix and retrained everyone.
They ended up with a slapped-in SAP R/3 environment that didn't really work, a
lot of poorly trained barely capable Unix and SAP administrators, and went
bankrupt two years later.
Thanks, KPMG.[ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 05:00 PM EDT |
KPMG should face criminal action like any other entity.
That includes charges and jail time. It seems in the
modern age that the average person cops it sweet - they
have to answer to criminal law and be punished, as well as
the politicians that they vote in don't support their
wishes. The opposite seems to be true for the large
corporate businesses, who seem to be largely immune to
criminal charges and penalties, and have the government
(which they didn't vote in, unless you count bribes, oops
I mean donations) making decisions that favour them.
Whatever is the world coming to?
Dave [ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 08:03 PM EDT |
| Perhaps in this case, KPMG, but let's take another case...
Martha Stewart
got inside information, although she wasn't an insider herself, and sold some
stock worth about 40 thousand dollars because of it. She was a billionaire at
the time. This wasn't really illegal for her to do either - what was illegal
was to make "mis-statements" to congress which inexplicably got
involved.
Now, George W. Bush brought this nation to war based on what he
claims was bad intelligence. At the time, George Tenant was the head of the
CIA. Tenant accepted all the blame for this "bad intelligence", effectively
letting George Bush off the hook by resigning. After Tenant resigned, he
received the Presidential Medal of Freedom from George W. Bush - the highest
civilian honor that can be bestowed on a private citizen.
At upper levels of
government, there isn't any justice - there is revenge, bribery and vendettas,
and that's it. [ Reply to This | # ]
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| Authored by: Anonymous on Thursday, June 16 2005 @ 08:41 PM EDT |
My company's financial controller was at KPMG for several years.
He has (forcefully) expressed the view that what happened to Anderson could have
happened to *any* of the Big Five global accountancy firms (as then were). They
all have big skeletons in their cupboards.
He also thinks it would be a Good Thing if another big firm were to fall. It
would make it impossible for regulators to continue to turn a blind eye to much
high-level corruption, and for big financial institutions to rely on it. That
could be exactly why the powers-that-be are extremely reluctant to risk KPMG or
its peers going the way of Andersons.[ Reply to This | # ]
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| Authored by: Anonymous on Friday, June 17 2005 @ 07:38 AM EDT |
| So, is it good law or bad law ?
If it's good law, enforce it.
If it's
bad law, repeal it.
If it's good law but not in the public interest to
enforce it, tell us what happened. Tell us that we are
forgiving (whoever) for
(whatever) just this once, but it
had better not happen again. Tell us how
you're going to
make it 'right' for whoever was adversely affected by the
illegal behaviour.
Either way, make it the same for all of us. I for one
want to understand what the law is. [ Reply to This | # ]
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| Authored by: sirwired on Friday, June 17 2005 @ 08:07 AM EDT |
I believe that the misconduct by Andersen in the Enron case normally would NOT
have resulted in a criminal prosecution. However, I believe that the DoJ was
all over them like a *insert appropriate analogy here* because they had already
reached a settlements with the Waste Management case AND the Sunbeam case where
they "admitted no wrongdoing", and promised to go forth and sin no
more. When it came to audit failure round # 3, I believe the DoJ simply wasn't
going to let Andersen off the hook a third time. If there was no punishment for
audit failures, then audits become worthless.
Did Andersen's conduct cross the line in the Enron case into criminality? No.
(or so the Supreme Court has ruled) However, there was certainly misconduct (or
at least extreme sloppiness) on the part of the Enron audit team. I expect the
DoJ knew quite well that the prospects for a conviction were slim, and the
evidence slight. However, I think their actual goal was to drive them out of
business after they completely botched three high-profile audits with conduct
that certainly tread a fine line of actual criminality. Note that after
Andersen was accused (and well before the trial), Andersen lost a great number
of it's clients and was likely already on it's way to obscurity. The DoJ was
possibly simply sending a signal that THEY didn't trust Andersen audits
anymore.
SirWired[ Reply to This | # ]
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| Authored by: Anonymous on Friday, June 17 2005 @ 02:50 PM EDT |
| Come on! This has absolutely nothing to do with SCO. Give me a break. [ Reply to This | # ]
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