Monday, June 27, 2005

Can the US and the market afford to indict (once more) one of the Big Four?

Remember my last post on ethics? The story is somewhat developing in the US. According to the latest news, KPMG acknowledged 'unlawful conduct' for first time in creation and sale of tax shelters that government contends cheated Treasury out of billions of dollars in taxes. This unusual public admission appears to be attempt by KPMG to avoid criminal indictment. In fact, the Wall Street Journal reports that top Justice Department officials are debating whether to pursue indictment against company (M)

Not enough, A Now York Law firm, along with two Arkansas firms, filed a proposed class action in Arkansas state court in January 2005 on behalf of Thomas Becnel and a nationwide class of taxpayers who entered into tax strategies known as the Offshore Portfolio Investment Strategy (OPIS) and/or Bond-Linked Issue Premium Structure (BLIPS) between 1998 and October 2000. The suit was filed against KPMG, Deutsche Bank, Sidley Austin Brown & Wood, Bayerische Hypo und Vereinsbank, Presidio Advisors, Quellos Group, and Quadra Capital Management.

The OPIS and BLIPS shelters were marketed and sold by KPMG as legitimate transactions that would produce financial gain or produce legitimate tax losses to minimize tax liability, the complaint alleges. The plaintiffs assert that the firms and banks knew or should have known that the tax products were illegal. The complaint alleges that KPMG sold the products to hundreds of clients, generating at least US $81 million in fees. Brown & Wood issued at least 250 opinion letters for the transactions, charging $50,000 per letter, and Deutsche Bank earned over US $60 million for its involvement in approximately 100 BLIPS and OPIS transactions, according to the complaint.

KPMG allegedly paid the law firm known now as Sidley Austin Brown & Wood $23 million to provide supportive legal opinions on more than 600 shelters. It allowed one former Sidley Austin lawyer, R.J. Ruble, to bill it at the equivalent rate of $9,000 an hour! That is definitely a good rate! Time will see where this story goes! But one thing is certain, that US regulators will review more carefully any possible indictment of another accounting firm. We all know what happened with Andersen and we all know what we do not need to see again happening!
If you are interested on the topic, please read the last article of the economist “The woes of KPMG”, where is discussed whether the US government and the market can afford to indict (once more) one of the Big Four accounting firms?


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