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U.S. charges ex-KPMG auditor in tips-for-cash scheme
Authorities on Thursday filed criminal and civil charges against a former KPMG senior auditor who is accused of passing non-public information about five of KPMG's corporate clients to a golfing buddy who traded on the tips.
Prosecutors charged Scott London, the Los Angeles-based auditor, with one count of conspiracy to commit securities fraud for giving Brian Shaw, a jeweler, information about public companies including, Herbalife, Skechers and Deckers Outdoor Corporation.
According to the complaint filed in federal court in Los Angeles, London also advised Shaw on the best ways to trade on the information. For instance, he told Shaw about a merger between KPMG's client RSC Holdings and United Rentals and assured his friend about trading on the takeover because "regulators were not looking for 'small fish,'" according to the complaint.
London also told Shaw about a takeover of Pacific Capital Bancorp by Union Bank, according to the charges.
Shaw made about $1 million trading on the tips and gave London roughly 10 percent of his profits on each of the trades, according to prosecutors, in the form of cash, jewelry, concert tickets and free meals.
The case has already cost London his job and forced KPMG to resign as the auditor for nutritional products group Herbalife and footwear maker Skechers.
It has also prompted some public confessions rarely seen in insider trading cases. Soon after news of the case broke earlier this week, London admitted to the Wall Street Journal he had passed on information about the companies to his friend but said he did not know his friend would trade on it.
But the criminal complaint says London knew Shaw was trading on the information. London's lawyer, Harland Braun, told Reuters on Wednesday London's statements to the press were incorrect and ill-advised.
Braun said on Thursday he was eager to have his client appear in court where he would be arraigned but would not enter a plea.
Legal experts said it was rare for insider trading suspects like London to make public statements, and it could cause more problems for him.
C. Evan Stewart, partner at Zuckerman Spaeder in New York who routinely represents clients charged with insider trading and who is not involved in London's case, said it was hard to see a reason for London's statements.
"I've never seen anything like this in 36 years of practice," he said. "That's certainly not a strategy I would be employing under these circumstances."
Shaw, through his lawyer, also spoke to the press. In a statement his lawyer, Nathan Hochman, emailed Reuters on Thursday, Shaw admitted he had received non-public information from London during a two-year period ending in 2012 and added:
"I cannot begin to apologize for my incredibly stupid actions. There is no excuse for my wrongful conduct."
When Shaw's brokerage firm, Fidelity, noticed its client's unusual trading patterns, it cut him off and Shaw and London agreed to end their arrangement. But when U.S. authorities later approached Shaw about his trading, he agreed to cooperate, restarted his tip-sharing relationship with London and recorded him passing on non-public information.
"Over the past several months, I have fully cooperated with the FBI, the SEC and the U.S. Department of Justice in their ongoing investigation of this matter," Shaw said in his statement.
"I expect that my actions will result in significant civil and criminal consequences, but I realize that this is the painful price I will pay for my transgressions."
Of the two sets of comments, it is London's that have potential to do further damage, according to Stewart.
"Mr. London was a very senior KPMG guy who had been counseled by very experienced lawyers on this subject I'm sure on numerous occasions, and then to be out there chatting with the Wall Street Journal about this, it's a very significant setback for his now former firm."
A spokesman for KPMG did not immediately respond to a request for a comment.
[Source: By Emily Flitter, Reuters, New York, 11Apr13]
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