Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Initial highlights of insider trading by KPMG partner

leave a comment »

A now-former partner of the LA office of KPMG, Scott London, is in boiling hot water for alleged insider trading.

Lots of news out. I will give a general overview. Lots more news will be out in the next few days, I’m sure.

Brief outline

He allegedly gave ideas about companies where he was the audit partner to a buddy at a golf club. The feds tumbled to odd trading patterns in said buddy’s portfolio and investigated.

The former partner hired an attorney before his first interview with the FBI and SEC. That’s a good move.

For more background, check out Golf Pal Chats Led to Probe – Wall Street Journal

The basic details are the partner has been fired. According to Trading Case Embroils KPMG at the WSJ, in return for the info he provided,

…the person gave him a discount on a watch, bought him dinners from time to time and “on a couple of occasions” gave him $1,000 to $2,000 in cash.

Pulling opinions on 2 audits

KPMG has resigned from two audits. They’ve also pulled opinions:

In resigning the two audit accounts, KPMG said it was withdrawing its blessing on the financial statements of Herbalife, a nutrition company, for the past three years and of Skechers, a shoe company, for the past two. KPMG stressed, however, that it had no reason to believe there were any errors in the companies’ books. Both companies said they are moving to find new auditors.

I’m scratching my head about that. Pulling 3 years of opinions on one client and 2 years on the other.  I think there’s more to come on this story.

No coverage of legal fees

Francine McKenna had one of the first articles I saw Wednesday morning – Another ‘Rogue’ Audit Partner’; Another ‘Duped’ Audit Firm.

She provides a survey of Big 4 partner’s flops on insider trading.

She also reports KPMG won’t be paying the partner’s legal fees. He’s on his own.

More background

The partner is identified in the Los Angeles Times article, Fired KPMG auditor can’t explain ‘lapse of judgment’ as a 29-year veteran of the firm. He is

 the partner in charge of audit services for KPMG’s Pacific Southwest region.

A regional PIC?

The article says he has 900 staff working for him.

Rough timeline

Two LA Times articles you want to read:

The partner’s golf buddy, who has now been identified, tells us when the info was flowing:

“During 2010 through 2012, I received non-public information … about a number of companies and then profited substantially from stock trades based upon that information.

He has been working with the authorities for several months:

“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.

A few weeks ago, the buddy gave the partner an envelope with $5,000 in it while they had coffee at a Starbucks. The FBI recorded the payment.

A few days later the FBI showed up at the partner’s home and showed him the pictures. They advised him to get an attorney. That was a couple of weeks ago.

Tip for everyone reading this post – if anyone ever, ever hands you an envelope with tons of money in it, get up and walk away.

Last week the FBI notified KPMG the partner was under investigation. He was fired within 24 hours.

Related articles in reverse chronological order:

Written by Jim Ulvog

April 10, 2013, 21:31 pm at 9:31 pm

Posted in Audits, Pondering

Tagged with

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: