KPMG and US law firm Sidley Austin Brown & Wood LLP have reached a preliminary $225 million settlement in a class-action agreement with about 275 former tax-shelter clients. The clients' law firm, Milberg Weiss Bershad & Schulman LLP would receive up to $30 million of the amount.
The proposed settlement covers former clients who participated in the tax shelters known as Blips, Flip, Opis and Short Option Strategy. These are the shelters that were the subject of KPMG's settlement agreement with federal prosecutors in August under which KPMG agreed to pay $456 million in penalties, but won't face criminal prosecution as long as it complies with the terms of its agreement.
The new agreement is subject to approval by a federal district court in Newark, N.J., at a hearing on October 7th, but faces opposition from other law firms representing KPMG clients or planning their own class-action suits against KPMG.
On Thursday, for instance, Cohen Milstein Hausfeld & Toll PLLC petitioned the New Jersey court to disqualify Milberg Weiss and block the $225 million agreement by requesting a stay on proceedings in the case. Cohen Milstein accuses Milberg of taking on a former KPMG shelter customer as a client three years ago and subsequently failing to notify him that Milberg had begun negotiating a class-action pact with KPMG.
In a statement, KPMG said the agreement with Milberg Weiss "is consistent with KPMG's goal of putting past tax shelter matters behind us." A Sidley Austin spokeswoman declined to comment.
According to KPMG's deferred-prosecution agreement with federal prosecutors, KPMG sold the four shelters to about 600 wealthy Americans from 1996 to 2002. Other ex-clients are pursuing their own actions against KPMG, either individually or in class-action suits.
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