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United States v. Stein

541 F.3d 130 (2008)

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United States v. Stein

United States Court of Appeals for the Second Circuit

541 F.3d 130 (2008)

Facts

The United States Attorney’s Office (USAO) (plaintiff) commenced an investigation of the partners and employees of KPMG, LLP for the use of fraudulent tax shelters. KPMG retained attorney Robert Bennett and his law firm, Skadden, Arps, Slare, Meagher & Flom LLP (Skadden) to navigate its approach to dealing with federal authorities. During the investigation, Bennett and USAO attorneys communicated a number of times. Bennett met with prosecutors who inquired about KPMG’s arrangement to pay legal fees for its employees. The prosecutors advised Bennett that, per the Thompson Memorandum promulgated by the USAO, they would view KPMG unfavorably and as potentially culpable if KPMG covered employee legal fees beyond what was legally required. The prosecutors promised to look at KPMG’s fee policy “under a microscope.” The prosecutors implied that they would prosecute KPMG if it voluntarily paid the legal fees of employees who engaged in misconduct. As a result, KPMG revised its fee policy. The revised policy imposed a cap of $400,000, a condition that employees cooperate with the government, and the termination of fee advancement if the employee was indicted. Prosecutors also routinely informed Skadden attorneys that certain employees were not fully cooperating so that KPMG would pressure the employees to cooperate. Ultimately, KPMG entered into a deferred prosecution agreement with a satisfied USAO. On the same day, the USAO indicted at least 19 KPMG employees including Jeffrey Stein and 12 other defendants (the employees) (defendants). KPMG swiftly ceased advancing legal fees to the indicted employees. The employees moved to dismiss the indictment because the government had interfered with KPMG’s advancement of legal fees. The district court dismissed the indictment. The government appealed to the United States Court of Appeals for the Second Circuit.

Rule of Law

Issue

Holding and Reasoning (Jacobs, C.J.)

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