The fraud-hit accounting firm KPMG is being sued for $1 billion in damages by a trustee of collapsed American lender New Century Financial Corp, who has accused KPMG of  conducting "reckless and grossly negligent audits", even as three of its employees received stiff jail sentences earlier this week. 

Law firm Thomas, Alexander & Forrester LLP has filed two suits on behalf of the trustee - one in California against KPMG LLP and another in New York against its parent, KPMG International. 

Convicted of selling improper tax shelters, former KPMG tax partner Robert Pfaff was sentenced on Wednesday to more than 10 years in prison, while former senior tax manager John Larson got eight years. The two were convicted by a federal jury last December on several counts for evading taxes through a vehicle known as a BLIPS tax shelter.

Larson was sentenced to 121 months and ordered to pay a fine of $6 million by Judge Lewis Kaplan in US District Court in Manhattan and Pfaff to 97 months and a fine of $3 million.

A third person convicted in the case, Raymond Ruble, a former partner at law firm Sidley Austin, was sentenced to six years and six months.

Handing down the sentence, Kaplan called the men's behaviour "extremely offensive" and said their fraudulent tax shelter scheme, which targeted clients who earned more than $20 million a year, was "a brazen act".

"These defendants knew they were on the wrong side of the line," he said, adding later they had cooked up "this mass-produced scheme to cheat the government out of taxes for the purposes of enriching themselves." The losses due to the BLIPS scheme were estimated at more than $100 million.

Larson, 57, and Pfaff, 58, were immediately remanded into custody but may later be granted bail pending an appeal of their convictions. Ruble was granted bail pending his appeal.

After a two-month trial, Larson and Pfaff were convicted on 12 counts of tax evasion and Ruble on 10 counts of tax evasion. The jury acquitted former KPMG tax partner David Greenberg. The company itself has denied any wrongdoing.