## Facts

- The United States indicted multiple former KPMG partners and employees for conspiracy and tax-fraud offenses related to allegedly abusive tax shelters.
- KPMG had a longstanding, deeply ingrained practice of advancing legal fees for partners and employees in proceedings arising from firm work, generally without strict limits.
- During the investigation, prosecutors invoked DOJ corporate-charging guidance that treated a corporation’s payment of employees’ legal fees as relevant to “cooperation.”
- The court found prosecutors communicated that continued fee advancement to employees under investigation could count against KPMG in charging decisions.
- Seeking to avoid indictment, KPMG altered its historic practice by:
  - Capping fees at levels below what it historically would have paid,
  - Conditioning continued payments on “cooperation” with the government (including submitting to interviews), and
  - Ending payments upon indictment; after a deferred-prosecution agreement, KPMG stopped paying defendants’ fees.
- Defendants moved pretrial to dismiss the indictment or obtain other relief, arguing the government’s pressure caused KPMG’s fee cutoff and impaired their ability to retain counsel for complex, expensive litigation.

## Issues

1. Whether the government’s pressure on KPMG regarding fee advancement made KPMG’s fee restrictions attributable to the government for Fifth and Sixth Amendment purposes.
2. Whether the government’s conduct substantially interfered with defendants’ Sixth Amendment right to counsel, including counsel of choice.
3. Whether conditioning and terminating fee payments to induce “cooperation” violated Fifth Amendment due process by coercing or penalizing the exercise of constitutional rights.
4. What remedy was appropriate for any constitutional violation found.

## Decision

- The court held the government’s reliance on corporate-charging guidance and related communications caused KPMG to change its fee-advancement practice; KPMG’s resulting fee restrictions were attributable to the government.
- The court held the government violated the Sixth Amendment by substantially interfering with defendants’ ability to obtain and maintain counsel of choice in an unusually costly and complex prosecution.
- The court held the government also violated Fifth Amendment due process by using third-party fee pressure to coerce cooperation and penalize the exercise of constitutional rights.
- The opinion principally resolved the constitutional violations and laid the groundwork for later remedial orders.

## Legal Principles

- Government conduct can be treated as constitutionally actionable where prosecutors intentionally use charging leverage to induce a third party to take steps that predictably impair a defendant’s constitutional rights.
- The Sixth Amendment is violated when the government substantially interferes with a defendant’s ability to retain counsel of choice, including through indirect financial interference that undermines the defense in a complex criminal case.
- Due process forbids the government from using financial pressure, imposed through a third party, to coerce cooperation or to penalize the exercise of constitutional protections, including the privilege against self-incrimination.
- Where government interference with counsel is severe and cannot be cured by lesser measures, dismissal may be an available remedy (addressed more fully in later proceedings).

## Conclusion

The court found that prosecutors’ use of charging leverage to influence KPMG’s payment of defense costs was attributable to the government and unconstitutionally impaired defendants’ ability to retain counsel and defend themselves, violating both the Sixth Amendment right to counsel and Fifth Amendment due process.


United States v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006)