November 1, 2005
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KPMG Tax-Shelters
Settlement By JONATHAN
WEIL
Staff Reporter of THE WALL STREET JOURNAL November 1, 2005; Page C3 NEWARK, N.J. -- A federal judge granted preliminary approval to a proposed $225 million class-action settlement by Big Four accounting firm KPMG LLP and the Sidley Austin Brown & Wood LLP law firm over questionable tax shelters that KPMG sold to hundreds of wealthy individuals. Under the accord, KPMG would pay about 80% of the settlement, while Sidley Austin would pay about 20%. The pact, expected to cover about 275 former KPMG tax-shelter clients, was reached with the class-action law firm Milberg Weiss Bershad & Schulman LLP, which stands to earn as much as $30 million in fees. A former Sidley Austin partner had written legal opinions supporting many of the shelters. In granting preliminary approval, U.S. District Judge Dennis M. Cavanaugh rejected arguments by competing class-action law firms that Milberg and the defendants engaged in collusive settlement talks and that Milberg should be disqualified because of alleged conflicts of interest involving a former client it once represented in a separate 2003 lawsuit against KPMG. Milberg and the defendants had denied the allegations. Attorneys for the law firms objecting to the settlement said they would appeal the judge's decision. The objecting law firms include Bernstein Litowitz Berger & Grossmann LLP of New York, Cohen Milstein Hausfeld & Toll PLLC of Washington and Marino & Associates of Newark. The ruling comes two months after KPMG reached a $456 million settlement with the Justice Department over the same four kinds of tax shelters, under which KPMG avoided federal prosecution but admitted criminal wrongdoing. Judge Cavanaugh's ruling in the New Jersey lawsuit came after two days of testimony by several witnesses, including a disgruntled former Milberg client, Milberg senior partner Melvyn Weiss, and two retired judges who had served as mediators in the case. At the conclusion of yesterday's hearing, Judge Cavanaugh said he was convinced, based on the mediators' testimony, that "the settlement discussions were aboveboard" and that the accord was the result of arm's length negotiations. The conflict-of-interest allegations centered on testimony by a former Milberg client, Mark Kottler, who accused Milberg lawyers of abandoning his 2003 tax-shelter lawsuit against KPMG to pursue a more lucrative class-action settlement for themselves. Milberg attorneys denied the allegation; Mr. Weiss called it "appalling." Judge Cavanaugh declined to disqualify Milberg from representing the class, saying he didn't believe the matter had any detrimental effects on the settlement. Write to Jonathan Weil at jonathan.weil@wsj.com1 | ||||||
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