Judge Gives Preliminary OK to KPMG Settlement

A federal judge on Monday gave preliminary approval to a $225-million settlement that accounting giant KPMG and a law firm have reached with about 275 former clients who used its tax shelters, lawyers in the case said.

The case is among dozens of lawsuits brought by former KPMG clients in state and federal courts around the nation. According to KPMG’s deferred-prosecution agreement with federal prosecutors, KPMG sold the four shelters to 601 wealthy people from 1996 to 2002.

The Internal Revenue Service said the shelters helped taxpayers who bought them elude $2.5 billion in taxes. A grand jury in New York has indicted 19 people, including KPMG’s former chief financial officers, former KPMG tax professionals and a former lawyer at Sidley Austin Brown & Wood, which worked with KPMG, in connection with the shelter sales.

The settlement would provide $195 million compensation to former clients of KPMG and Sidley Austin who participated in the tax shelters known as Blips, Flip and Opis, as well as some former clients who participated in a shelter called Short Option Strategy.

The remaining $30 million would go to Milberg Weiss Bershad & Schulman, attorneys for the clients.

The four shelters were the subject of KPMG’s settlement agreement with federal prosecutors. Under that agreement, KPMG admitted criminal wrongdoing and agreed to pay $456 million in penalties but will not face prosecution as long as it complies with the terms of the settlement.

From Associated Press