A federal judge has “with the greatest reluctance” dismissed charges related to fraudulent tax shelters against 13 former KPMG employees. Judge Lewis A. Kaplan of Federal District Court in Manhattan, said the 13 employees accused of tax shelter fraud totaling about $2.5 billion were denied a fair trial when federal prosecutors “deliberately or callously” prevented KPMG from paying the former employees' legal fees.

In the July 16 opinion, Kaplan said that in preventing defendants from acquiring defense funds, prosecutors denied the former KPMG employees a fair defense and deprived them of their counsel of choice in some cases.

“This is intolerable in a society that holds itself out to the world as a paragon of justice,” Kaplan wrote. “The responsibility for the dismissal of this indictment as to 13 defendants lies with the government.”

Charges against three other former KPMG employees still stand. These employees did not establish that KPMG would have paid their defense costs if not for pressure from prosecutors, Kaplan said. One other KPMG defendant pleaded guilty last year. Also charged was an outside investment adviser and lawyer involved in the alleged scheme to develop and sell fraudulent tax shelters.

Prosecutors plan to file new charges against some or all of the 13. KPMG has made a deal to cooperate with prosecutors and pay a $456 million fine to avoid criminal prosecution.

A federal judge has “with the greatest reluctance” dismissed charges related to fraudulent tax shelters against 13 former KPMG employees. Judge Lewis A. Kaplan of Federal District Court in Manhattan, said the 13 employees accused of tax shelter fraud totaling about $2.5 billion were denied a fair trial when federal prosecutors “deliberately or callously” prevented KPMG from paying the former employees' legal fees.

In the July 16 opinion, Kaplan said that in preventing defendants from acquiring defense funds, prosecutors denied the former KPMG employees a fair defense and deprived them of their counsel of choice in some cases.

“This is intolerable in a society that holds itself out to the world as a paragon of justice,” Kaplan wrote. “The responsibility for the dismissal of this indictment as to 13 defendants lies with the government.”

Charges against three other former KPMG employees still stand. These employees did not establish that KPMG would have paid their defense costs if not for pressure from prosecutors, Kaplan said. One other KPMG defendant pleaded guilty last year. Also charged was an outside investment adviser and lawyer involved in the alleged scheme to develop and sell fraudulent tax shelters.

Prosecutors plan to file new charges against some or all of the 13. KPMG has made a deal to cooperate with prosecutors and pay a $456 million fine to avoid criminal prosecution.