What was once the United States' largest criminal tax prosecution ended with a spectacular fizzle on December 17 when a jury in the KPMG LLP case convicted three of the remaining four defendants for participation in the sale of tax shelters the IRS deemed illegal.
The jury in the U.S. District Court for the Southern District of New York convicted attorney R.J. Ruble on 10 counts of tax evasion, while former KPMG tax partner Robert Pfaff and senior tax manager John Larson were each convicted on 12 counts of tax evasion. All three were acquitted on a conspiracy charge. A fourth defendant, David Greenberg, was acquitted of all charges. Sentencing was set for March 20, according to news reports.
The criminal action against 19 former KPMG advisers and the firm itself began in 2005, but the firm entered into a deferred prosecution agreement with the government and later had the charges dropped after it agreed to pay $456 million. The government in 2007 suffered a significant blow when 13 defendants were removed from the case after U.S. District Court Judge Lewis A. Kaplan held that their constitutional rights had been violated because the government pressured KPMG not to provide payment of their legal defense fees.
The Second Circuit upheld the dismissal of the 13 defendants in 2008, and the government did not appeal to the U.S. Supreme Court. Two of the six remaining defendants -- David Amir Makov and David Rivkin -- pleaded guilty and acted as cooperating witnesses in the case.
One practitioner told Tax Analysts that "this case demonstrates the difficulty of prosecuting complex tax cases that some have said should not even have been prosecuted."