Scott London also faces criminal charges of conspiracy to commit securities fraud
The SEC has charged a former partner at audit firm KPMG and his friend with insider trading, alleging he shared confidential information on five companies with a golfing buddy in exchange for at least $50,000 in cash and a $12,000 Rolex watch.
Scott London, the former partner in charge of KPMG’s Southwest audit practice, has also been charged with conspiracy to commit securities fraud by the US Attorney’s Office for the Central District of California in a parallel action. The criminal charge carries a potential sentence of up to five years in prison.
‘London was honored with the highest trust of public companies, and he crassly betrayed that trust for bags of cash and a Rolex,’ says George Canellos, the acting director of the division of enforcement for the SEC, in a press statement.
The SEC alleges that London, a 30-year veteran of KPMG, gave Bryan Shaw, a personal friend, trading tips on five companies KPMG was auditing, including Herbalife, footwear maker Skechers USA and Deckers Outdoor. London was the lead partner on KPMG’s audits of Herbalife and Skechers USA, and served as the company’s account executive for Deckers.
‘London was able to obtain material, non-public information about these companies prior to their earnings announcements or release of financial results,’ the SEC says in its press statement. Shaw ‘routinely traded at least a dozen times on the inside information he received from London. He grossed profits of more than $714,000 from trading based on confidential financial data about Herbalife, Skechers and Deckers.’
The SEC says Shaw also made about $192,000 by buying stock in equipment rental company RSC the day before its rival, United Rentals, bought the company in a $1.9 bn deal, and another $365,000 by buying shares of lender Pacific Capital shortly before it was sold to rival UnionBanCal in March last year.
Shaw, who co-operated with authorities partway into the investigation and began recording his conversations with London, was not hit with a criminal charge. The SEC alleges that the insider trading scheme started in 2010 when Shaw’s family jewelry business suffered financial difficulties.
‘During 2010 through 2012, I received non-public information from Scott London about a number of companies and then profited substantially from stock trades based upon that information,’ Shaw says in a statement given to the media through his lawyer. ‘I cannot begin to apologize for my incredibly stupid actions.’
Earlier this week, KPMG resigned as auditor for Herbalife and Skechers after London told the audit firm he was under investigation by the SEC for insider trading. It also immediately fired London.
John Veihmeyer, KPMG’s chairman and chief executive officer, earlier this week said the company will take legal action against London, adding that he was ‘appalled to learn of the additional details about Scott London’s extraordinary breach of fiduciary duties to our clients, KPMG and the capital markets.’
