Action movie star Wesley Snipes surrendered at the federal courthouse in Ocala, Florida, on tax fraud charges filed against him in October.  Snipes has been in Namibia filming a movie, and was released on $1 million bail and allowed to return there to finish the shoot.  Snipes’ decision to return to the U.S. contrasts with that of another defendant residing in Namibia, Kobi Alexander, who is fighting extradition on securities fraud charges related to options-timing at Comverse Technology.  According to an AP story (here), Snipes must return to the U.S. by January 10, 2007, at the latest.  (ph)

The New York Times reports (here) that prosecutors in the U.S. v. Stein case involving the prosecution of sixteen former KPMG partners and employees along with two other defendants are unleashing another round of documents on the defendants.  The government is turning over records obtained in its investigation of Deutsche Bank for its role in financing the tax shelters at issue in the case.  Defense lawyers have requested all exculpatory evidence, and apparently the government decided that the documents from that investigation substantially overlap with the tax conspiracy charges and may contain arguably exculpatory evidence under Brady.  The defendants have already received over fifteen million pages of documents from the government, many of them after the discovery cut-off, a point U.S. District Judge Lewis Kaplan noted when he indefinitely postponed the trial (see earlier post here).  Turning over the documents from a parallel investigation may add substantially to the torrent of paper already dumped on the defendants.  Prosecutors can at least argue that they are simply giving the defendants what they asked for, but a full-scale document dump will not be taken to very kindly by Judge Kaplan.  Then again, after his earlier rulings in the case, I doubt the prosecutors in the case, who are from the Southern District of New York, can fall much further in the judge’s estimation. (ph)

The Second Circuit heard oral arguments on November 21 in the appeal of U.S. District Judge Lewis Kaplan’s decision providing sixteen former KPMG partners and employees with a civil claim to seek attorney’s fees in the government pending prosecution of them on conspiracy and tax fraud charges.  A Wall Street Journal article (here) states that senior Circuit Judge Ralph Winter said he was "dubious" of the district court’s authority to permit a civil cause of action, and noted Judge Winter questioned whether Judge Kaplan "created a proceeding without any expressed authority."  U.S. District Judge John Gleason, sitting on the panel by designation, raised the interesting issue of the proper remedy for a constitutional violation, stating that it could be dismissal of the indictment.  As a trial court judge, I suspect Judge Gleason will be more sympathetic to Judge Kaplan’s position than the appellate judges might be because he may well face the same issues in his courtroom in Brooklyn one day.

As discussed in an earlier post (here), Judge Kaplan’s recent order postponing the trial indefinitely hinted that he might revisit the issue of remedy, and the defendants have asked for dismissal due to prosecutorial misconduct and a violation of their constitutional rights from the government’s pressure on KPMG to deny them attorney’s fees.  Dismissal is the ultimate penalty, and one the Supreme Court has been loath to permit absent a clear violation of a constitutional or statutory protection.  The Second Circuit’s skepticism about Judge Kaplan’s decision to drag KPMG into the case in a collateral proceeding may result in a remand to address directly the question of the proper remedy for a constitutional violation, assuming there is one. (ph)

One can add delay to the list of inevitables, along with death and taxes, at least when it involves a multi-defendant white collar crime prosecution.  U.S. District Judge Lewis Kaplan postponed indefinitely the trial of sixteen former KPMG partners and employees, along with two other non-KPMG defendants, on conspiracy and tax fraud charges because of delays over resolution of the issue of whether KPMG is liable to pay the attorney’s fees of the defendants it once employed.  Judge Kaplan ruled earlier that the government’s Thompson Memo violated the defendants’ due process rights when prosecutors pressured the firm to deny payment of the attorney’s fees (U.S. v. Stein, 435 F.Supp.2d 330 (S.D.N.Y. 2006).  He had set a trial on the right to payment of the fees to begin in October, but that has been postponed by the Second Circuit as it considers the government and KPMG’s appeal.

In an opinion delaying the trial (available below), Judge Kaplan states that "[t]he importance of this issue for the prompt and fair resolution of the charges in this case would be difficult to overstate." If the Second Circuit reverses the district court’s decision, I suspect the defendants will appeal to the Supreme Court.  Judge Kaplan would delay the trial further in all likelihood, pending the outcome of the certiorari petition, causing even more delay.  In a more ominous message to the government, Judge Kaplan also wrote: "If KPMG is obliged to pay, payment could greatly mitigate the impact of the government’s improper actions. This in turn could diminish the advisability of dismissal or other potentially serious sanctions. If KPMG is not obliged to pay, or if a prompt determination is not feasible, the issue of sanctions could be considered after exhaustion of that possibility." (Emphasis added)  The only party that can be sanctioned directly by the court is the United States, and I think the Judge is clearly hinting that he will consider dismissing the indictment for prosecutorial misconduct, which would trigger yet another round of appeals. 

The government has produced approximately fifteen million pages of documents, including seven million since the discovery cut-off in October, so any hope of a quick trial even after the Second Circuit’s decision is faint.  Trial is probably at least a year off, and a 2008 starting date is a definite possibility.  But then, even if it starts, imagine how interesting it will be to listen to testimony about the marketing of tax shelters. (ph)

Download kpmg_trial_delay_opinion_nov_13_2006.pdf