Attestation Update – A&A for CPAs

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Consequences – insider trading edition – #2

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Is possible jail the only bad thing on the horizon for a CPA accused of insider trading? Not quite. There’s a long list of bad things within view.

This series of posts is examining the consequences on the horizon for Mr. Scott London, former KPMG partner, as a result of his indictment for allegedly trading on insider information. For some time I’ve been writing on the tragedy of fraud with a focus on the consequences that befall the perpetrator.

This post discusses the possible consequences of:

  • Criminal tax enforcement
  • Publicity

Criminal tax enforcement

Tracy Coenen opens up the discussion of income tax fraud in her post Scott London’s Other Crime.

After pointing out that an accountant ought to be able to get a better deal than something under $100K for something around $1.2M of illegal profits, she moves on to the tax issue.

She is making a not-so-wild guess that Mr. London probably didn’t include the $50K of cash, $12K watch, and $12K or $20K of concert tickets in his 1040. Even if the concert tickets were worth a fraction of that, the numbers are substantial.

That could be something in the range of $60K to $80K over the years 2010 through 2012.

It is my guess that Big 4 partners have seriously messy tax returns because, based on my rather limited knowledge of partnership tax law, they pick up a tiny fraction of every income and expense line item of the firm.

As a result, I’ll guess partners don’t prepare their own returns. That means he would have had to tell the KPMG tax department to add another $10K or $30K of “other” income to his return each year. That would generate far too many questions, for which there wouldn’t be good answers.

I’ll agree with Ms. Coenen that chances are high that he didn’t get those payments included on his 1040.

Thus, there is a good chance he may have some future conversations with the Criminal Investigation Department with follow-up criminal enforcement action.

That discussion likely ends with back taxes, interest & penalties, along with the possibility of more jail time.

One commenter at Ms. Coenen’s post pointed out the California Franchise Tax Board will likely be paying Mr. London a visit. They will want money. Don’t know if they push hard for jail time.

Publicity

Mr. London was featured on the front page of the Wall Street Journal on April 10.

He made it again on April 12. Twice in one week

Exhibit A to the criminal indictment is the FBI’s photo of him accepting an envelope which the FBI claims contained a $5,000 payment. You’ve seen the picture. It is plastered all over the internet. It’s the illustrating photo for much of the reporting in the last few days. That’s all the ‘evidence’ most readers will need to conclude he’s guilty as sin.

That photo was at the top center of the WSJ’s front page on 4-12, only without the grey-out face on his golf buddy that appeared in the copy at the end of the indictment.

He also had reporters following him around which resulted in a background article at the Wall Street Journal – Question in KPMG Case: Why? The article gives the name of his wife, when he graduated from college (1984), his alma mater, name of the city where they live, when they bought their house and how much they paid for it, and background on one child (boy, attends a named high school, plays on baseball team).

Oh, and that article appeared on page B1 of the WSJ on 4-13 – that’s the front page of the second section. Not the place I want to spread around my bio information. Hmm. Does that mean he made the front page of the WSJ three times in one week?

Most high-profile business writers have already run major articles discussing him and his alleged actions.

Every business writer in the country will be talking about him for the next few weeks.

Oh. And since we’re in the internet age, most of those articles will never, ever go away.  Some may disappear, but not many.

His great-great-grandchildren will be able to read almost all of those articles when they are surfing the ‘net 70 or 80 years from now.

Previous post: jail time, criminal fines, legal fees for criminal case, civil fines

Next post: loss of employment, reputation, and professional licensing

Written by Jim Ulvog

April 15, 2013, 7:00 am at 7:00 am

Posted in Audits

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