The KPMG insider trading fiasco is far worse that indicated in first reports.
- The amounts allegedly paid to the partner are larger than initial reports.
- The government alleges confidential information was passed on 5 companies, not 2.
- The government alleges the CPA partner actively planned with his golf buddy when to buy and sell which stocks and options.
The Wall Street Journal had the first report I saw announcing Scott London, regional PIC at KPMG in LA has been indicted for securities fraud on Thursday morning – Substantially expanded article from the first announcement is here: Former KPMG Partner Charged.
The indictment is available on FoxBusiness – Ex-KPMG Exec Charged in Insider Trading Scam.
The indictment has a number of interesting comments:
- There are wiretaps involved as evidence
- Allegation is the golf buddy made $1M in profits off the inside information
- The partner allegedly provided info about earnings announcements and guided the golf buddy how to structure the trades to avoid detection.
- There are allegedly three more KPMG clients involved – Deckers Outdoor Corporation, RSC Holdings, and Pacific Capital Bancorp (pages 3 to 9).
- The golf buddy alleges he gave money to the CPA roughly equal to 10% of his gains. He claims to have handed off $10K bundles of $100 bills (page 10)
- The golf buddy alleges he spent between $25k to $40K for concert tickets for himself and the CPA. He also alleges he gave a $12K watch to the partner.
- The golf buddy alleges the partner volunteered that Herbalife would be a good stock to buy.
- The FBI alleges that during the meeting when the golf buddy passed $5k to the CPA, they discussed how to make money in Herbalife stock.
- The FBI claims to have recorded conversations on 2-21-13 between the two discussing how the Deckers stock price will react to the as-yet-nonpublic earnings release that was about to go out.
- The FBI claims to have audio and visual of a meeting on 3-7-13 in the parking lot of a coffee shop. The FBI alleges $5k was passed and the two discussed whether to cashing out some Decker’s options.
- On 3-20-13 the FBI told the CPA he was under investigation (page 22)
- On 4-3-13 the FBI interviewed the CPA at the US Attorney’s Office. The CPA was provided an agreement for use immunity of the interview. (page 22)
- The FBI claims the CPA admitted to sharing information on 4 clients and wasn’t sure about a 5th. (page 23)
- The FBI claims the CPA estimates he received about $50k in cash for the information. (page 23)
Full disclosure: I worked at Peat, Marwick, Mitchell, as KPMG was known back then, for about 3 years in their Albuquerque office. I have high respect for my colleagues at PMM and the firm of KPMG.
Related articles in reverse chronological order:
- KPMG partner arraigned – might plead guilty – hint on how to avoid jailtime?
- SEC files complaint against former KPMG partner
- KPMG partner indicted for insider trading. Indictment shows fiasco is far worse than shown in initial reports
- Initial highlights of insider trading by KPMG partner
- Live example of the ‘Wall Street Journal’ test