The Securities and Exchange Commission on Thursday charged the former partner in charge of KPMG's Pacific Southwest audit practice, Scott London, and his friend, Bryan Shaw, with insider trading on nonpublic information about firm clients.
The SEC alleges that London tipped Shaw with confidential details about five KPMG audit clients and enabled Shaw to make more than $1.2 million in illicit profits trading ahead of earnings or merger announcements.
The two men had met at a country club several years earlier and became close friends and golfing partners, according to the SEC. London has said that he provided the inside information about his clients to help Shaw overcome financial struggles after his family-run jewelry business began faltering in the economic downturn.
In exchange for the illegal trading tips, the SEC said that Shaw paid London at least $50,000 in cash that was usually delivered in bags outside of his Encino, Calif., jewelry store. Shaw also gave London an expensive Rolex watch as well as other jewelry, meals and tickets to entertainment events.
London, who lives in Agoura Hills, Calif., and worked at KPMG for nearly 30 years, recently informed the firm that he was under investigation by the SEC and criminal authorities for insider trading in the securities of several KPMG clients. The firm immediately fired him.
The U.S. Attorney's Office for the Central District of California announced criminal charges against London the same day.
"London was honored with the highest trust of public companies, and he crassly betrayed that trust for bags of cash and a Rolex," said George S. Canellos, acting director of the Division of Enforcement, in a statement.
Michele Wein Layne, director of the SEC's Los Angeles Regional Office, added, "As a leader at a major accounting firm, London's conduct was an egregious violation of his ethical and professional duties."
