Background articles emerging on KPMG insider trading fiasco

A few articles of interest out today on the alleged insider trading by former KPMG partner Scott London.

Wall Street Journal – Question in KPMG Case: Why?

Some general background in the article. Previous public reporting has indicated Mr. London is married with two children.

This article reports that during this week one of their sons was playing in a high school baseball game attended by Mr. London and his wife. He graduated from college in 1984. My inference is he started with Peat Marwick, since that would give him the reported 29 years tenure at KPMG.

Mr. London is the son of a CPA.

The two children include one son in high school. Just as a wild guess, the other child is somewhere in that age range. That will be mentioned later in one of my posts on consequences.

The family bought a house in Agoura Hills in 1995 for $434K. Since they are still living in that community and there is no other mention of another house, I assume they are still living in the house they bought in 1995. That was 11 years after graduation, which would be about the time he was promoted to partner.

His income has blossomed since 18 years ago, yet they live in the same home. That’s the modest lifestyle you would expect from a CPA. That reinforces the tremendous questions of why?

Wall Street Journal – How to Solve a Problem Like Scott London

How can a CPA firm absolutely, positively prevent this type of disaster?

Article explores the question.

I have no clue what kind of training and requirements the Big 4 have in place for independence issues, so the following comments are quite useful for me:

All of the major accounting firms have extensive training programs to get across to employees the need to hold confidential information close. They have whistleblower systems and requirements for employees to regularly attest that they’ve complied with all ethical and professional standards, including rules barring the leaking of inside information.

I’ve no doubt there is very clear training that says quite explicitly that most of what you see while working at whichever firm is confidential and must be guarded. Whistleblower systems put staff on notice someone could turn you in if you are doing stupid stuff visibly.

Is there any doubt that any accountant that’s worked for any of the firms more than six months or anyone whose even gotten to the point of studying for the exam knows confidential stuff can’t be shared? I don’t think so.

Some have programs that require senior employees to report their personal investments, and flag any that might cause a conflict of interest. 

That’s good. But it won’t detect giving tips to your buddy, your wife, or lover. It won’t detect an undisclosed account at another broker.

London had signed a compliance agreement with KPMG, and was aware that the client information he provided to his friend was confidential, said Harland Braun, his attorney.

Good. But again, the absolute knowledge that what you are doing is wrong doesn’t stop a person if said person wants to do something wrong.

So, after all that stuff, the question still stands. How do you absolutely prevent insider trading?

Los Angles Times – Timeline of alleged insider-trading dealings involving London.

Article summarizes the known stock activity and gains into a timeline by company as alleged by the FBI.