Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Update on wondering who first discovered the KPMG insider trading mess

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I previously concluded that FINRA, the self-regulatory branch of the securities industry, gets credit for discovering the insider trading scam involving a now-former senior level partner at KPMG.

Now, I’m not so sure.

By the way, we are still waiting for sentencing of Mr. Shaw. I’ve been watching the news closely but nothing has been visible this week. Back to the main question –

Gary Zeune and I have briefly looked at a some more of the public reporting on the fiasco. After doing so, neither of us are sure whether it was FINRA or Fidelity that first found the illegal trading.

My previous post here, concluded FINRA first found the trading. That post quoted an article that initially appeared in the Los Angeles Times on July 30, 2013.

Here are a few articles that hint the trading may have been found by the brokerage firm holding the account where the trades were executed.

The Los Angles Times reported on May 20, 2013, Jeweler pleads guilty in KPMG insider-trading case:

The scheme began unraveling when Fidelity Investments apparently discovered the suspicious trades in Shaw’s account and froze it, said Shaw’s attorney, Hochman.

CTV News, Ex-KPMG partner pleads guilty in insider trading case, has this comment:

A brokerage firm, suspecting irregularities in Shaw’s trades, contacted the FBI and Securities Exchange Commission. 

Could be that freezing the account is just the first sign the duo saw that the feds were on to them.  See this comment from the Wall Street Journal’s article on April 11, 2013, Secret Recordings, Cash in Insider Sting,

The first sign of trouble came in July 2012, when Fidelity Brokerage Services froze Mr. Shaw’s trading account, according to the criminal complaint. 

Those three newspaper reports could be what was publicly known at the time and could also just reflect what was known by the defense team.  FINRA’s involvement prior to Fidelity’s freezing of the accounts would likely have been invisible at the time.

So, it’s not quite clear who first tumbled to the trading by Mr. London and Mr. Shaw. The higher likelihood is FINRA, but I’m not as sure as I was a few days ago. Guess that just shows that fraud is murky.

Written by Jim Ulvog

September 20, 2013, 9:08 am at 9:08 am

Posted in Audits

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