A former partner with accounting giant KPMG was sentenced to 14 months in federal prison for giving confidential information about his firm’s clients to a golfing buddy, who used it to make more than $1 million in profits trading stocks.
Scott London, 51, pleaded guilty to insider trading last year, admitting that he gave confidential information about KPMG clients, including Herbalife Ltd. and Skechers USA Inc., to his stock-trading friend several times from October 2010 to May 2012.
U.S. District Judge George Wu issued the sentence Thursday in Los Angeles. He also ordered London to pay a $100,000 fine.
Defense attorney Harland Braun had argued for a sentence of 6 to 12 months, noting that his client had already paid dearly for his crime: losing his $900,000-a-year job, his reputation and a host of KPMG friends who are not permitted to talk to him.
The prosecutor in the case, Assistant U.S. Atty. James A. Bowman, said three years was appropriate because of the significant violation of London’s duties to his clients and the damage it caused them. Herbalife and Skechers were required to hire new accounting firms and restate their earnings after learning of London’s actions.
London benefited from the crimes. As a reward for the tips, London’s friend, Bryan Shaw, gave him thousands of dollars in cash, concert tickets and jewelry, including a Rolex watch, prosecutors said.
London was a senior partner at KPMG in charge of the audit practice for clients in California, Arizona and Nevada. He also personally oversaw audits of Herbalife and Skechers.
He gave Shaw inside information at least 14 times, reading him news releases before they were issued, telling him about planned acquisitions and giving him advance word about company earnings, prosecutors said.
The tips enabled Shaw to make numerous profitable trades.
Shaw snapped up thousands of Herbalife shares in the weeks before a May 2011 announcement of the company's record sales, prosecutors said. The news drove Herbalife shares up 13%. Shaw sold his shares within days, netting about $450,000 in profit.
In February 2012, London told Shaw that KPMG client Pacific Capital Bancorp was about to be acquired by Union Bank, prosecutors said. Pacific Capital's shares soared 57% when the news was announced in March 2012. Shaw made $365,000.
The scheme unraveled after regulators became suspicious of Shaw’s well-timed trades. He later agreed to cooperate in an investigation of London, secretly recording their conversations and handing him an envelope stuffed with cash while FBI agents snapped photographs.
Shaw, who has also pleaded guilty, is scheduled to be sentenced May 19.
In April 2012, KPMG shocked the financial world by announcing it had fired London and withdrawn several past audits of Herbalife and Skechers. The criminal case was filed a few days later.
London, in an interview with The Times, said he could not explain his actions.
"I have no idea what I was thinking,” he said shortly after he was fired. “I don't know why there was a lapse of judgment but there was."
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