On the Defensive

When several of KPMG's top partners were investigated on allegations related to illegal tax shelters in 2004, prosecutors wasted no time implementing a scorched earth strategy--

demanding not only that the company waive privilege, but also that KPMG stop paying legal fees for any accused employees who did not fully "cooperate" with prosecutors.

This strategy, however, is not without its difficulties. Firms will certainly require the company to pay some kind of retainer to be available for such duties. And top-notch firms may be wary of entering into such arrangements.

"If the employee decides suddenly to assert the Fifth, and the company stops paying for his counsel, the firm may be representing that person pro bono until the end of the case," Levine said. "It's very difficult to withdraw at that sensitive point."

Yet despite this support from the bench, the decision of when and how extensively to extend legal defense fees to executives still lands companies and their counsel in a difficult position. At the end of the day, all a company can do is proceed with caution.

"It makes sense that companies fight indictment at all costs," Pearlson said. "But it's always a matter of striking a balance."

staff Writer

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