Saturday, September 13, 2008

The DOJ and Attorney-Client Privilege

"The [DOJ] Thursday formally barred prosecutors from pressuring companies and individuals under investigation to waive legal protections, the same day as an appeals court dealt a blow in a case that helped galvanize criticism of the government's aggressive methods. ... Deputy Attorney General Mark Filip ... said the changes 'reflect the department's commitment to two goals that I believe we share: safeguarding the attorney-client privilege, which is so central to our criminal justice system, and preserving the department's ability to investigate corporate wrongdoing effectively.' ... The [Second Circuit] upheld a ruling by New York U.S. District Court Judge Lewis A. Kaplan, who had dismissed charges against 13 former partners and empoyees of KPMG LLP because prosecutors, who were weighing charges against the firm, pressured the firm to cut off payment of the employees' legal fees. ... 'The [DOJ's] track record of five different policies in ten years cries out for a permanent solution that cannot be revised at the whim of each new Deputy Attorney General,' says a statement issued by an advocacy group, the Coalition to Preserve Attorney-Client Privilege. In the KPMG ruling, a three-judge panel unanimously upheld a lower court's decision to dismiss the case after finding that prosecutors had violated the rights of the 13 former executives of accounting firm KPMG who were charged with selling and marketing illegal tax shelters. The judges said they agreed with Judge Kaplan, who had found that prosecutors coerced accounting firm KPMG into refusing to pay legal costs for the executives. ... 'KPMG faced ruin by indictment and reasonably believed it must do everything in its power to avoid it,' the circuit court wrote in its 68-page decision. 'The government's threat of indictment was easily sufficient to convert its adversary into its agent'," my emphasis, Evan Perez and Amir Efrati at the WSJ, 29 August 2008.

"Congratulations to Lewis D. Kaplan, the federal judge whose withering critique of prosecutorial abuse in the KPMG tax-shelter case was vindicated yesterday by the Second Circuit Court of Appeals. ... The practice [cutting off legal fees] also bludgeoned middle-level employees into premature plea deals, lest they be bankrupted merely for trying to defend themselves. .... Justice's long delay in admitting error here doesn't speak well of prosecutorial discretion these days. There is legitimate doubt about the substance of the KPMG cases", my emphasis, Editorial at the WSJ, 29 August 2008.

I am ambivalent about this decision; agreeing the indictments should have been dismissed. The 2nd Circuit apparently missed this: "was easily sufficient to convert"? The DOJ seems to work this way: an AUSA meets "Big Shot" at the supposed "target" company or "Big Shot's Big Law Partner". They decide who "target" will give the DOJ as scapegoat(s) to "avoid indictment". The DOJ and "target" now "kabuki dance" to look as if they are adversaries, when they never were. The designated scapegoat(s) face ruin, under any circumstance. If they fight, each could spend $1-$3 million in attorneys' fees. Then lose. Few middle managers can afford that. The designated scapegoat(s) either: plea bargain, with a small fine and short prison sentence, or the DOJ seeks something to charge them with bearing a potential say, 20-year sentence. "Target" company walks and the AUSA handling the case gets a "Big Law" partnership in 3-5 years. And the cycle continues. The 2nd Circuit found the Feds "violated the rights" of the defendants. Really? Can they sue under 42 USC 1983, conspiracy to violate civil rights? Why should individual AUSAs or for that matter, the responsible US Attorney be exempt from such suits? Why should KPMG's attorneys not be named defendants in such a case? Will the NY State Bar begin disbarment proceedings against all responsible parties? If not, why not?

Admitting error? Give me a break WSJ, the Feds knew exactly what they were doing.

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