Monday, September 12, 2005

KPMG Names Two To Head Up Its Tax Practice

September 12, 2005; Page C1

KPMG LLP has selected new leaders for its tax practice, tapping two senior partners with no apparent ties to the tax shelters at the heart of the accounting firm's recent legal problems.

In the second management shuffle at the division since early 2004, Shaun T. Kelly, 46 years old, will take over as the firm's vice chairman of tax services. Frederick S. Smith, 49, will become vice chairman of tax-services operations, the tax practice's No. 2 post. The firm notified its tax partners of the appointments, which take effect Sept. 30, at a meeting last week in Dallas. A public announcement is expected today. Mr. Kelly is a mergers-and-acquisitions specialist, and Mr. Smith joined the firm in 2002.

[Shaun T. Kelly]

Messrs. Kelly and Smith succeed James Brasher, 51, and John Chopack, 57, respectively. According to a copy of the announcement to be released today, Mr. Brasher "will assume other significant duties within KPMG's organization," and Mr. Chopack "will retire as previously planned in early 2006." Reached Saturday, Mr. Brasher declined to comment. Mr. Chopack didn't return phone calls.

The selections come two weeks after KPMG avoided a federal indictment by admitting to criminal wrongdoing and agreeing to a $456 million settlement with the Justice Department over the firm's sales of questionable tax shelters to hundreds of wealthy Americans from 1996 to 2002. A grand jury in New York has indicted eight of the firm's former tax professionals, including three former KPMG vice chairmen, all of whom last week entered not-guilty pleas.

KPMG said the management changes had been planned since June, when the firm's partners elected Timothy P. Flynn to succeed Eugene O'Kelly as chairman and chief executive, shortly after Mr. O'Kelly was diagnosed with advanced-stage cancer.

In the statement to be released today, the firm said Mr. Flynn in June "had informed Messrs. Brasher and Chopack, the KPMG board of directors, as well as government officials, that he would effect a series of structural, organizational and leadership changes, including in the tax practice, which would be finalized and implemented upon resolution of the Department of Justice investigation." Today's announcement, the firm said, "is the culmination of the plan as it relates to the tax practice."

[Rick Smith]

In the statement, Mr. Flynn said Messrs. Brasher and Chopack "have served with unquestioned integrity and professionalism, successfully instituting a series of profession-leading risk management and business practices reforms, and reinforcing a commitment to quality in KPMG's tax practice." Mr. Flynn said Messrs. Kelly and Smith "are well prepared to take on their new responsibilities," and "have a steadfast commitment to quality and client service, as well as strong team-building skills."

As reported in an Aug. 10 Wall Street Journal article, Messrs. Brasher and Chopack, in jobs prior to their 2004 appointments as vice chairmen, helped oversee KPMG's sales of corporate-tax shelters that the Internal Revenue Service subsequently challenged as abusive tax-avoidance schemes. It's unclear whether either man knew the shelters could be problematic at the time, and there has been no indication that either one is the focus of any government investigation.

Mr. O'Kelly promoted the two men as part of a January 2004 management shake-up that included the departures of former KPMG deputy chairman Jeffrey Stein and former KPMG vice chairman Richard Smith, both of whom were indicted last month on charges of conspiracy to commit tax fraud. Prosecutors last week said they intend to seek indictments of at least a dozen more people by Oct. 17 as part of the government's continuing KPMG tax-shelter investigation.

Mr. Kelly currently holds the title of "global transaction services chairman." A native of Belfast, Northern Ireland, he joined KPMG's Dublin office in 1980, moved to San Francisco in 1984 and was named a partner in 1999. He currently is based in Chicago.

Mr. Smith, now based in Philadelphia, joined KPMG three years ago after a career at the accounting firm Arthur Andersen LLP, which ceased operations in 2002. Currently, he is the firm's area managing partner for tax services for the firm's Mid-Atlantic region, which covers four states and the District of Columbia. In their new posts, Messrs. Kelly and Smith will work at KPMG's New York headquarters.


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