Federal Court Criticizes Prosecutors' Coercive Actions Resulting in Non-Payment of Employees' Attorneys' Fees
DOJ prosecutors in corporate fraud and white-collar defense cases should think twice before pursing tactics designed to discourage corporations from paying their employees' attorneys' fees to avoid criminal indictment of the entity. This stems from a recent federal court ruling involving KPMG, one of the world's largest accounting firms. http://www.nysd.uscourts.gov/rulings/05CR888_6272006_0835TS.pdf In that case, KPMG sought to avoid indictment by cooperating with prosecutors through, in part, firing employees suspected of wrongdoing (even before found guilty) and cutting off their legal fees. The judge found that KPMG cut off legal fees as a result of the prosecutors' coercive use of "Thompson guidelines". Specifically, the court found that the government, through use of the guidelines, discouraged KPMG from advancing defense costs to employees in an effort to avoid a corporate indictment, and that by doing so the government violated the employees' constitutional right to a fair trial and legal counsel.
The Thompson Guidelines (named after US Deputy Attorney General Larry Thompson), came into being following the corporate scandals of Enron, Tyco, Global Crossing and other companies. KPMG, like most corporations, had a longstanding policy of advancing and paying legal fees to employees caught up in inquiries. The Thompson memorandum changed that practice, however, given its view that advancing or paying legal fees may be one and the same as protecting culpable personnel, thus being a factor weighing in favor of indictment of the entity.
The strongly worded opinion critical of prosecutorial tactics uses language such as, "KPMG refused to pay because the government held the proverbial gun to its head", and "The government . .. has let its zeal get in the way of its judgment". Since the opinion hales from Judge Lewis Kaplan, who sits in a federal court home to many high-profile corporate fraud cases, the DOJ is likely to take heed of the opinion and more carefully scrutinize how it implements the guidelines.
