The Wall Street Journal Blog reports on a recent decision by a U.S. District Court judge who ruled that prosecutors violated both the rights to due process and to a fair trial by “pointing a gun to the head” of KPMG in “strongly discouraging” KPMG to indemnify or otherwise pay for the legal bills of certain KPMG partners who were indicted in connection with a tax shelter matter. KPMG arguably had a duty to indemnify but they were concerned about retribution from the prosecutors. The 88-page opinion addresses the controversial U.S. Justice Department’s Thompson Memo and related issues.
This issue is important in Delaware because the DGCL and many Delaware Chancery Court and Delaware Supreme Court cases make the statutory and/or contractual right to indemnification and advancement of legal fees almost a sacrosanct aspect of Delaware corporate law. See, e.g., recent Delaware Chancery Court decision summarized at this link.
If prosecutors by subtle, or not so subtle, threats of criminal prosecution against a whole company could nullify that key right of officers and directors then the benefit might be illusory when it is most needed. Here is the link to the WSJ Blog story and the full text of the court decision:
Law Blog: KPMG: Judge Finds Prosecutors Violated Defendants’ Constitutional Rights