KPMG Tax-Shelter Settlement Revised
Accounting firm KPMG said it would pay investors who bought improper tax shelters $154 million under a revised legal settlement, down from $195 million first proposed last year.
Fees for 30 law firms would drop to $24.6 million from the $30 million offered Sept. 27, according to court papers filed Thursday in federal court in Newark, N.J.
KPMG and Sidley Austin Brown & Wood, a law firm that advised on the shelters, revised the plan after 61 investors opted out of the original settlement. Under the new terms, 55 investors won’t join the class-action settlement, with many suing KPMG individually. The settlement covers about 250 investors, attorney Melvyn Weiss, a founder of Milberg Weiss, said in the court papers.
“The proposed settlement will pay class members more than most individuals have been receiving, net of attorneys’ fees, in individual settlements,” Weiss said in his filing.
Milberg Weiss, which worked 5,178 hours on the case, billed for legal fees of $2.2 million.
The revised accord goes before U.S. District Judge Dennis Cavanaugh on Friday for a fairness hearing. He gave preliminary approval to the initial settlement Oct. 31.
KPMG agreed in August to pay $456 million to avoid U.S. criminal prosecution, saying in a settlement with the Justice Department that its phony shelters helped wealthy Americans dodge at least $11.2 billion in taxes.
Eighteen defendants, including 16 former KPMG executives, are under indictment. Former KPMG partner David Rivkin pleaded guilty to helping sell improper tax shelters and agreed to cooperate with prosecutors.
The settlement before Cavanaugh establishes complex formulas for investors to recoup some of their transaction costs on the shelters. In court papers, KPMG and Sidley Austin said investors probably couldn’t recover back taxes and interest they owe for investing between 1996 and 2005 in the shelters, named Flip, Blip, Opis and SOS.
“Transaction costs are the key element of any possible recovery here,” the firms said in their filing. “The class members in general are high net-worth individuals, many of whom had their own professional advisors and knowingly sought to avoid paying taxes on substantial gains or other income.”
