Former KPMG Partner Scott London Gets 14 Months in Prison
Scott London, a former senior audit partner at KPMG LLP, was sentenced to 14 months in federal prison on Thursday for providing inside information about several of his firm’s clients to a friend, who used it to make at least $1.6 million in illicit profits.
London, who was fired by KPMG, was a 29-year veteran of the Big Four accounting firm and supervised more than 50 audit partners and 500 employees. He was based in Los Angeles.
His attorney, Harland Braun, had argued for a sentence of six to 12 months, noting that his client had already paid dearly for his crime: losing his $900,000-a-year job, his reputation, and a host of KPMG friends who are not permitted to talk to him, the Los Angeles Times reported.
Assistant US Attorney James A. Bowman pushed for a three-year sentence, noting the significant violation of London’s duties to his clients, such as Herbalife Ltd. and Skechers USA Inc., and the damage it caused them. The two companies were required to hire new accounting firms and restate their earnings after learning of London’s actions.
London provided the inside information about his clients to help friend and golfing partner Bryan Shaw overcome financial struggles after his family-run jewelry business began faltering in the economic downturn. Shaw received nonpublic company information several times from London between October 2010 and May 2012.
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. He was able to obtain confidential information about these companies prior to their earnings announcements or release of financial results.
Shaw grossed profits of more than $714,000 from trading based on the confidential financial data about Herbalife, Skechers, and Deckers, according to the US Securities and Exchange Commission (SEC).
London also gained access to inside information about impending mergers involving two former KPMG clients – RSC Holdings and Pacific Capital. Shaw made nearly $192,000 by purchasing RSC Holdings stock the day before its December 15, 2011, merger announcement. He also made more than $365,000 in illicit profits by purchasing Pacific Capital securities prior to a merger announcement on March 9, 2012, according to the SEC.
As a reward for the insider-trading tips, Shaw gave London more than $50,000 in cash and gifts, including a $12,000 Rolex watch.
The scheme fell apart after regulators became suspicious of Shaw’s well-timed trades. He cooperated with investigators last year, wearing a recording device during meetings with London while FBI agents listened in.
Shaw, who also pleaded guilty last year, is scheduled to be sentenced on May 19, according to the Los Angeles Times.