The Securities and Exchange Commission (SEC) [official website] on Thursday charged [complaint, PDF] the former partner in charge of KPMG's [official website] Pacific Southwest audit practice, Scott London, with providing insider information [press release] to his friend Bryan Shaw about KPMG clients Herbalife, Skechers and Deckers Outdoor Corporation [corporate websites]. The SEC alleges that London's insider tips allowed Shaw to make more than $1.2 million in illicit profits. In exchange for the tips, Shaw paid London at least $50,000 in cash, a Rolex watch and other jewelry, meals, and event tickets. The SEC's complaint charges London and Shaw with violations of the Securities Exchange Act of 1934 [text, PDF]. The complaint asks for London and Shaw to return ill-gotten gains and pay prejudgment interest and financial penalties, and enjoins them from future violations of the federal securities laws. The U.S. Attorney's Office for the Central District of California [official website] the same day announced [press release] criminal charges against London for conspiracy to commit securities fraud through insider trading, which carries a statutory maximum penalty of 5 years in prison and a fine of $250,000.
This is not the first time a current or former KPMG employee has been under fire. In 2007 US District Judge Lewis Kaplan dismissed charges against 13 of 16 defendants in a criminal tax shelters case [JURIST reports] against former employees of the accounting firm KPMG, ruling that federal prosecutors violated the constitutional rights of the defendants [JURIST report] by pressuring KPMG not to pay for the defendants' legal fees. KPMG had admitted the tax shelters were illegal and has taken full responsibility for the unlawful conduct [JURIST report]. In August 2005 KPMG agreed to pay the US Internal Revenue Service (IRS) [official website] a $456 million fine [JURIST report] to avoid criminal prosecution.