U.S. District Judge Lewis A. Kaplan said he wouldn't allow statements made by the two men to be used at their upcoming trial.

The decision was the judge's second targeting what he said were improper efforts by the government to get KPMG to force employees to cooperate in the probe, which led to charges against 18 people.

In June, Kaplan ruled that the government improperly pressured KMPG to stop paying the legal bills of any workers accused of wrongdoing. He said the withdrawal of that financial support unfairly crippled the employees' ability to defend themselves.

In Wednesday's ruling, the judge said that financial pressure also led KPMG Vice Chairman Richard Smith and a former partner, Mark Watson, to waive their Fifth Amendment rights and agree to speak with prosecutors, even if it meant exposing themselves to legal risk.

KPMG also threatened to fire workers who didn't cooperate. Kaplan said prosecutors had made it clear in policy documents that white-collar firms that didn't take such steps risked being indicted, an often-fatal blow.

"The government brandished a big stick - it threatened to indict KPMG. And it held out a very large carrot," Kaplan wrote. It offered KPMG the hope of avoiding indictment if it could deliver "employees who would talk, notwithstanding their constitutional right to remain silent."

A spokeswoman for U.S. Attorney Michael J. Garcia declined to immediately comment on the ruling.

Previously, Garcia has said he believed that prosecutors acted "ethically and properly" throughout the case.

Kaplan declined to toss out statements made by other defendants in the case, including former partner Carol Warley, saying other factors had influenced their decisions to speak with prosecutors.

The trial in the case has been postponed until at least January.

The defendants, all former KPMG employees, are accused of developing illegal tax shelters that allowed rich clients to dodge taxes.

KPMG LLP avoided criminal prosecution by acknowledging its role in the tax shelter scheme and agreeing to pay a $456 million penalty.

The accounting, tax and consulting firm, based in New York, is the U.S. member of KPMG International, which has operations in 144 countries and more than 100,000 partners and employees.

-- DAVID B. CARUSO (Associated Press Writer)