Judge Delays KPMG Trial, Removes Lawyer

By Patricia Hurtado
Bloomberg News
Friday, October 19, 2007

A federal judge postponed the criminal trial of former KPMG executives over tax shelters after claims that a defense lawyer in the case had a conflict of interest.

U.S. District Judge Lewis Kaplan in Manhattan yesterday postponed next Tuesday's trial, the culmination of the biggest U.S. tax shelter investigation ever. He removed Steven Bauer of Latham & Watkins, a lawyer for former KPMG executive John Larson. Larson declined to waive his right to have an attorney free of conflicting interests.

"The court therefore has no choice but to disqualify Mr. Bauer as trial counsel for Mr. Larson," Kaplan wrote in his order. The judge recently held sealed hearings to determine whether Bauer had a conflict, as he once represented a former defendant who is now a government witness. The judge yesterday discharged jurors he had already selected to hear the case.

The delay is the latest setback for the government in its investigation. In July, Kaplan dismissed charges against 13 former KPMG executives, including former deputy chairman Jeffrey Stein, after concluding that prosecutors violated their right to counsel by pressuring the firm not to pay their legal fees.

Bauer previously served as attorney for David Makov, an investment adviser and former co-defendant with Larson and former KPMG colleague Robert Pfaff. Prosecutors said they expect Makov to testify for the government in the case.

David Greenberg, Raymond Ruble, Pfaff and Larson are charged with conspiracy and tax counts.

The government had asked the judge to decide whether Bauer should be removed because he worked as a lawyer for Makov and may have a conflict of interest.

"The government belatedly called the court's attention to certain possible conflicts of interest between" Bauer and his client, Kaplan wrote. He added that he will address the issue of whether Latham & Watkins should also be disqualified if Larson seeks to be represented by another lawyer at that firm.

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