The U.S. Court of Appeals for the Second Circuit recently upheld the S.D.N.Y.'s decision to dismiss federal indictments against thirteen former KPMG executives for alleged tax-fraud after finding that federal prosecutors violated the KPMG executives' constitutional rights. According to press reports, the Second Circuit found that the government "unjustifiably interfered with defendants' relationship with counsel and their ability to mount a defense, in violation of the Sixth Amendment." The Second Circuit reportedly found that, by threatening to indict KPMG if it paid the legal fees of the former partners and employees, the prosecutors infringed the individuals' right to counsel.

At a news conference that was reported to have been scheduled before the Second Circuit ruled, Deputy Attorney General Mark R. Filip announced that the Department of Justice has revised its corporate charging guidelines for federal prosecutors. As a result, he said, prosecutors evaluating cooperation will no longer consider as a factor whether a corporation provides indemnification of legal fees for its directors, officers and employees. Because legal fees and expenses in connection with government investigations may run into the millions of dollars, a company’s ability and willingness to indemnify its directors and officers will likely remain of significant importance in attracting and retaining highly qualified candidates.

For our prior post discussing the S.D.N.Y.'s decision in detail, please click here.

Click here to read the opinion.