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Legal Fees in Criminal Cases

By John Gamble

Although a corporation obviously cannot be put in prison, saber-rattling by the government concerning a possible indictment is indeed a draconian threat, as Arthur Andersen learned in 2002, when it was charged with obstruction of justice for its role with the Enron scandal. The firm was indicted in March 2002, convicted by a jury in June 2002, and by August of that year had ceased to exist as a going professional concern. By the time its conviction was overturned on appeal by the Fifth Circuit in 2005, the damage was long since done, with the partnership dissolved, the employees dismissed, and the value of the Arthur Andersen name irreparably lost.

The managing principals of another accounting giant, KMPG LLP, no doubt had reason to recall the fate of Arthur Andersen when deciding, in 2005, whether to cooperate with the U.S. Office ('USAO') for the Southern District of New York. KPMG was facing a possible indictment for using fraudulent tax shelters to deprive the federal Treasury of over $2 billion in revenues. In an apparent effort to avoid Arthur Andersen's fate, KPMG entered into a Deferred Prosecution Agreement with the USAO whereby prosecution of the firm was deferred while it cooperated with the government's investigation. KPMG says that part of the price it had to pay for the government's forbearance included an agreement to stop paying the massive attorney fees that were being incurred by its employees who were under investigation.

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