Following KPMG’s announcement that it sacked its Los Angeles audit practice leader, Scott London, due to an insider trading alert earlier in the week, the US Securities and Exchange Commission (SEC) officially charged London and his friend Bryan Shaw with alleged insider trading of non-public information.
The SEC said London tipped Shaw with confidential details about five KPMG audit clients and enabled Shaw to make more than $1.2m in illicit profits trading ahead of earnings or merger announcements.
"The two men had met at a country club several years earlier and became close friends and golfing partners. London has said that he provided the inside information about his clients to help Shaw overcome financial struggles after his family-run jewellery business began faltering in the economic downturn. In exchange for the illegal trading tips, Shaw paid London at least $50,000 in cash," the SEC said in a statement.
According to the SEC’s complaint filed in federal court in Los Angeles, London began providing Shaw with non-public information in October 2010 and the misconduct continued for the next 18 months.
On Monday KPMG had to step down as auditor of health care group Herbalife and shoe manufacturer Skechers due to impairment of independence following the news of London’s alleged actions.
The firm condemned London’s actions and said, "the partner was immediately separated from the firm".
"KPMG’s 22,000 partners and employees unequivocally condemn this individual’s rogue actions. This individual violated the firm’s rigorous policies and protections, betrayed the trust of clients as well as colleagues, and acted with deliberate disregard for KPMG’s long-standing culture of professionalism and integrity," KPMG wrote in a statement.
The SEC’s litigation against London and Shaw will be led by Lynn Dean.
KPMG resigns from two audit engagements following insider trading alert