Comments from Scott London during interview – part 1

On June 26, 2014, Scott London was interviewed in a four-hour CPE webcast on professional ethics.

The course was presented by The Pros & The Cons. The interviewers were Gary Zuene, CPA, Gaylen Hansen, CPA, and Michael Sallah of the Washington Post.

There are two published interviews that took place before the CPE session:

I’ve seen two articles discussing the interview:

This post will summarize some of the comments from that interview that I found to be of particular interest.

The goal of this series of posts is to get the interview comments organizing into related topics.

Context for this series

I am presenting my comments about the interview with only a few narrative statements. At some later point I will correlate this with other news reports.

I won’t comment now about my perceptions or how we interpret Mr. London’s comments. That is for another series of posts. Maybe.

How did the insider trading scheme develop?

Mr. London indicated he met Bryan Shaw in the early 2000s. They became friends. Other news reports indicate they were golfing buddies.  Their wives were friends, not particularly close Mr. London said, but still they were friends.

Perhaps you recall a discussion in the Going Concern blog about exchanges on Facebook between the Shaws and Londons. They were the typical banter that happens amongst social friends.

Mr. London indicated his buddy Bryan Shaw is an active investor. Mr. Shaw did a lot of research and presumably had a lot of trading in his accounts.

In somewhere around 2008 Mr. Shaw started asking Mr. London the kinds of questions that a friend would ask.

I would imagine these would be things like what has you so tied up that we had to cancel our tee time? Or what’s got you so stressed this week? Something that would obviously be a problem in hindsight could be something like so what did Herbalife do this time that has you working so many hours again?

Questions like that would have been relatively innocuous at the time.

Mr. London wonders today whether he was being groomed at that point.

Mr. London insists there was not any nonpublic information passed before about 2010. Mr. Shaw was attentive to the names of clients who were generating overtime for Mr. London. He was likely making inferences and in fact was trading on it.

In around 2010, Mr. Shaw told Mr. London what he was doing – making trades based on inferences from their casual conversations. Mr. London says he was surprised by it.

That’s where the slippery slope came in. Mr. London started giving a bit more information in response to slightly more detailed questions.

In late 2010, Mr. London became aware that Mr. Shaw’s business was struggling. That’s when he crossed the line and started sharing some nonpublic information.

It started relatively low-key and innocent but then shifted to something far more serious.

Mr. London said that if he had been asked something like hey I’ve got this great scheme to make us a bunch of money, Mr. London is confident he would’ve said “go pound sand.”

Next post: The payoffs and a quiet time.

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