Judge Orders Hearing on Defense Pay by KPMG

A federal judge refused a request by accounting firm KPMG to toss out demands by former employees that the company pay for their defense in what the government has called the largest criminal tax case in U.S. history.

Judge Lewis A. Kaplan issued a written ruling late Wednesday after hearing arguments from both sides regarding KPMG’s obligations concerning 17 former employees who were among 19 people indicted on charges of conspiracy and tax evasion in the case.

The judge ordered an October trial to hear evidence that could help him decide whether KPMG should be ordered to pay what would amount to tens of millions of dollars in legal fees.

The criminal case resulted after the government investigated what it described as a tax shelter fraud that helped the wealthy escape $2.5 billion in U.S. taxes.

The issue is crucial to the rest of the case because the judge already has ruled that the government violated the constitutional rights of the former KPMG employees charged in the case by demanding that the firm depart from its prior practice of paying legal fees for its workers.

The judge had concluded that KPMG would have paid the legal expenses if the government had not acted improperly.