KPMG LLP may avoid potentially fatal criminal charges over its sale of tax shelters after the Bush administration instructed federal prosecutors to seek a settlement with the accounting firm, people familiar with the case said.
The Justice Department in Washington directed David Kelley, the U.S. attorney for the Southern District of New York, to negotiate a deal to avoid charges that could drive KPMG out of business, said the people, who requested anonymity.
A settlement would ease concerns in the Justice Department and among securities regulators that KPMG’s collapse would eliminate thousands of jobs and reduce the number of major accounting firms to three. Hundreds of large companies would have to scramble for an auditor if KPMG goes under.
“The Justice Department’s issue is do we really want to take this down to the Big Three,” said David Gourevitch, a former prosecutor, now in private practice in New York. “Or is there some way short of destroying this company that we can get some comfort that this is not going to be recurring in the future?”
If the talks between Kelley and KPMG break down, the firm could still be indicted, the people familiar with the discussions said. KPMG may face charges it obstructed justice, sold abusive tax shelters to rich clients and misled investigators from the Internal Revenue Service.
KPMG has been negotiating with officials in Washington to help resolve the case, which is being handled out of Kelley’s office in Manhattan. The firm acknowledged the threat of an indictment in June and apologized for what it said was unlawful conduct by former partners.