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KPMG Hires Federal Judge

Firm Facing Investigation, Civil Charges

By Carrie Johnson and Brooke A. Masters
Washington Post Staff Writers
Friday, January 21, 2005; Page E01

Accounting giant KPMG LLP yesterday said it would hire U.S. District Judge Sven Erik Holmes to oversee its legal affairs, as the firm and the entire audit industry undergo unparalleled scrutiny from securities regulators and plaintiff lawyers.

Holmes, 53, chief judge of the U.S. District Court for the Northern District of Oklahoma, will resign his judicial post and join New York-based KPMG in March after its 1,600 partners formally approve his appointment to the newly created position of vice chair for legal affairs, the firm said in a statement.

"KPMG is strengthening its legal function to ensure that our structure, policies, and processes continue to meet the highest levels of quality and integrity as the rapid pace of change confronting the accounting profession creates an entirely new environment," KPMG chief executive Eugene D. O'Kelly said in the statement.

The hire comes as KPMG and several of its partners face an ongoing grand jury investigation by David N. Kelley, the U.S. attorney for the Southern District of New York, related to the firm's sale of allegedly abusive tax shelters. KPMG also is defending itself against civil charges filed by the Securities and Exchange Commission related to a $6.1 billion restatement by Xerox Corp, one of its clients.

Regulators increasingly are pushing companies in legal trouble to change the way they do business -- sometimes requiring firms to hire a corporate monitor as a prelude to a settlement of government charges. But three sources familiar with the KPMG appointment said Holmes was not hired in response to government prodding. The three spoke on condition of anonymity because, they said, they were not authorized to speak publicly.

KPMG leaders said in the statement that Holmes would help the firm meet a variety of key challenges, including efforts to change the tort system and curb rising insurance premiums stemming from shareholder class-action lawsuits that target KPMG and its accounting industry rivals for their audit work.

Holmes has long-standing ties to Washington. He is a former partner in the prominent District law firm Williams & Connolly LLP, where he represented clients in business disputes and government investigations. He also served as staff director for the U.S. Senate Select Committee on Intelligence and as a vice president for the Baltimore Orioles.

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