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KPMG Settlement Receives Preliminary Approval

by Glen Shapiro, LawAndTax-News.com, New York

02 November 2005


Ruling on Monday, US District Judge Dennis M. Cavanaugh granted preliminary approval to a $225 million settlement proposed by accounting firm KPMG to compensate investors who made use of its tax sheltering arrangements.

The proposed settlement is designed to cover 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.

Earlier this month, objectors to the settlement argued that there had been collusion between the two sides and that lawyers had ignored conflicts of interest, leading Judge Cavanaugh to announce that:

"Frankly, I am just not comfortable approving the settlement preliminarily at this time."

He went on to qualify the remark by adding that: "I am not at all suggesting that the settlement offered won't turn out to be an excellent settlement."

However, following two days of testimony in which evidence of the alleged collusion was presented, Judge Cavanaugh expressed his approval of the settlement terms. Lawyers for those who objected to the settlement have pledged to appeal the Judge's decision.


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