NEW YORK — A federal judge dismissed charges yesterday against 13 former KPMG employees in what the government had described as the largest criminal tax case in U.S. history, saying the prosecutors prevented them from presenting their defenses.
U.S. District Judge Lewis A. Kaplan said the dismissal was necessary because the government coerced KPMG, an audit, tax and advisory service, to limit and then cut off its payment of the one-time employees” legal fees.
The case was brought after the government investigated what it described as a tax shelter fraud that helped the wealthy escape $2.5 billion in federal taxes.
Yusill Scribner, a spokeswoman for federal prosecutors, said the government had no comment.
Judge Kaplan said the case will proceed to trial against three former employees who had not established that KPMG would have paid their defense costs even if the government had not intervened. He also let the case proceed against two defendants who were not employed by KPMG and whose rights were not affected.
Judge Kaplan said the Department of Justice “deliberately or callously” prevented many of the defendants from obtaining funds for their defense, blocking them from hiring the lawyers of their choice.
“This is intolerable in a society that holds itself out to the world as a paragon of justice,” Judge Kaplan said, adding that he reached his conclusion “only after pursuing every alternative short of dismissal and only with the greatest reluctance.”
Judge Kaplan said he understands that prosecutors must be aggressive in pursuing serious crimes. He called the federal prosecutor”s office in Manhattan a “model for the nation” but said there are limits on the permissible actions of even the best prosecutors.
A federal appeals court in May had all but dared Judge Kaplan to dismiss some cases, saying he had the authority to toss out conspiracy and tax evasion charges if he concludes that prosecutors deprived the workers of constitutional rights by pressuring KPMG to stop paying their legal fees.
KPMG LLP has signed a deal admitting its role in the tax-shelter scheme. It avoided criminal prosecution as it agreed to continue cooperating.
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