“Federal prosecutors in Los Angeles filed criminal charges Thursday against a former KPMG LLP partner who has admitted to passing on inside information about his clients.
Scott London, the partner in charge of audits of Herbalife Ltd. HLF +4.11% andSkechers USA Inc. SKX +1.57% until he was fired from KPMG on Friday, also was hit with civil securities-fraud charges by the Securities and Exchange Commission. The development is the latest in a scandal that led to the accounting firm resigning as auditor of the two companies.
Mr. London was charged with one count of conspiracy to commit securities fraud through insider trading, according to the criminal complaint. He faces up to five years in prison and a $250,000 fine. The complaint said the trades generated a profit of more than $1 million for his friend, Bryan Shaw.
The complaint also says Mr. London tipped off Mr. Shaw about five KPMG clients, more than was previously known.
In exchange, according to the criminal complaint, Mr. London received bags containing $100 bills wrapped in $10,000 bundles, concert tickets, and a Rolex watch.
According to the SEC’s civil complaint, Mr. London was the lead partner on several KPMG audits, including Herbalife and Skechers, and he was the firm’s account executive for Deckers Outdoor Corp. DECK +1.28% In those roles, Mr. London was able to obtain material, nonpublic information about these companies prior to their earnings announcements or release of financial results.
Mr. Shaw, who lives in Lake Sherwood, Calif., is accused of trading at least a dozen times on the inside information he received from Mr. London. He allegedly grossed profits of more than $714,000 from trading based on confidential financial data about Herbalife, Skechers, and Deckers, the complaint says.
The SEC alleges that Mr. London also gained access to inside information about impending mergers involving two former KPMG clients—RSC Holdings and Pacific Capital Bancorp. Mr. London allegedly tipped Mr. Shaw with the confidential details….”
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