Sentencing recommendation and suggestion for lighter sentence for ex-KPMG partner’s insider trading
Going Concern has breaking news about the KPMG insider trading fiasco. They have a copy of the court filing by Mr. Scott London taking exception to the pre-sentencing report from the United States Probation Office.
The GC copy of the filing can be found here.
I will have more to say about the case after the sentencing. Here are a few initial thoughts on the filing.
Arguments for shorter sentence – amounts involved
The pre-sentencing report (which I now know is called a PSR) called for downgrading to a 36 month sentence from what is calculated from federal guidelines as a 46 to 57 month range.
Mr. London’s attorney argues it should be in the recommended range of 18 to 24 months based on the amount involved that Mr. London would reasonably have expected to be involved.
The filing spells out in the analytical detail you would expect from a CPA why Mr. London reasonably believed the amount of Mr. Shaw’s illicit gains were about $200K. Specifically:
- Mr. Shaw indicated he would use one-third of the proceeds to pay his taxes (Mr. London assumed a 30% rate instead).
- The remaining proceeds would be split between Mr. Shaw and Mr. London, according to Mr. London’s recollection.
- Mr. London received approximately $66,000 of cash and tangible items (thus confirming the public reports suggesting proceeds were in the 50k/60k range).
- Thus, backing up Mr. London’s ~$66K net proceeds to Mr. Shaw’s gross proceeds means Mr. London believed Mr. Shaw grossed about $200K.
That explains publicly visible comments of shock by Mr. London when he heard the amounts involved were over $1M.
Therefore, Mr. London’s filing argues the sentencing should be based on a $200K amount instead of $1.27M. That would knock the calculated range down from 46-58 months to 18-24 months. I am guessing a further down-grade for voluntary cooperation and no previous record would reduce that further.
Scheme ended before the investigation started
Another factor Mr. London takes exception to is the PSR asserting the scheme would have continued without federal intervention. He asserts the scheme ended in April 2012.
The only reason there was more info passed on by Mr. London in early 2013 was that Mr. Shaw was pushing the issue after the investigation started at the insistence of the FBI. From the filing:
It should be noted that Mr. London, after a great deal of prodding on the part of Shaw, who at this point was taking part in the “sting operation” that led to Mr. London’s arrest, did give Shaw a final tip in or around early February of 2013. This only occurred after considerable badgering from Mr. Shaw.
One of the first lessons from this is if someone suggests breaking the law, DON’T.
A lesson I’ve mentioned previously: If your friend-you-didn’t-know-was-trading-on-inside-information pushes a wad of cash across the table to you, shut your mouth, stand up, and WALK AWAY.
Today’s lesson is that if you have stopped breaking the law and your friend-in-crime insists on starting up again, DON’T.
If said friend-who-is-not-a-friend insists on handing you another stack of cash in a parking lot, shut your mouth, turn around, and WALK AWAY.
There are so many places where Mr. London could have stopped this travesty.
If he had wanted to. That’s a big IF.
Final arguments for lighter sentence – fine too high and cooperation provided
The filing also suggests a $100K fine is excessive. Really?
More reasonable would be $25K, according to the filing.
Final reason the filing says the proposed sentence is too high is it did not give sufficient credit for the assistance Mr. London gave KPMG to mitigate the impact on the firm.
The filing cites the damage caused to Arthur Andersen after Enron as a reason Mr. London was so quick to fully disclose to KPMG his actions and to cooperate with them. He wanted to prevent serious trauma to the firm.
Interesting tidbits are that Mr. London had to get permission from the US Attorney before he disclosed the existence of the investigation to the firm.
If you are interested, you can read the Going Concern article. If you are really, really interested, the link to the court filing is above.
There’s much more to say. I’ll pull things together after the sentencing hearings.
Full disclosure: Many years ago I worked for KPMG, back when it was called Peat, Marwick, Mitchell.