The SEC has charged the former partner in charge of KPMG’s Pacific Southwest audit practice and his friend Brian Shaw with insider trading on nonpublic information about firm clients.
Here’s the full release:
The SEC alleges that Scott London tipped Bryan Shaw with confidential details about five KPMG audit clients and enabled Shaw to make more than $1.2 million in illicit profits trading ahead of earnings or merger announcements. The two men had met at a country club several years earlier and became close friends and golfing partners. London has said that he provided the inside information about his clients to help Shaw overcome financial struggles after his family-run jewelry business began faltering in the economic downturn. In exchange for the illegal trading tips, Shaw paid London at least $50,000 in cash that was usually delivered in bags outside of his Encino, Calif. jewelry store. Shaw also gave London an expensive Rolex watch as well as other jewelry, meals, and tickets to entertainment events.
London, who lives in Agoura Hills, Calif., and worked at KPMG for nearly 30 years, recently informed the firm that he was under investigation by the SEC and criminal authorities for insider trading in the securities of several KPMG clients. The firm immediately terminated him.
“London was honored with the highest trust of public companies, and he crassly betrayed that trust for bags of cash and a Rolex,” said George S. Canellos, Acting Director of the Division of Enforcement.
Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office, added, “As a leader at a major accounting firm, London’s conduct was an egregious violation of his ethical and professional duties.”
In a parallel action, the U.S. Attorney’s Office for the Central District of California today announced criminal charges against London.
According to the SEC’s complaint filed in federal court in Los Angeles, London began providing Shaw with nonpublic information in October 2010 and the misconduct continued for the next 18 months. Shaw and London communicated almost exclusively using their cell phones, although on at least one occasion London disclosed nonpublic information in the presence of others during a golf outing.
According to the SEC’s complaint, London was the lead partner on several KPMG audits including Herbalife and Skechers USA, and he was the firm’s account executive for Deckers Outdoor Corp. Therefore, London was able to obtain material, nonpublic information about these companies prior to their earnings announcements or release of financial results. Shaw, who lives in Lake Sherwood, Calif., routinely traded at least a dozen times on the inside information he received from London. He grossed profits of more than $714,000 from trading based on confidential financial data about Herbalife, Skechers, and Deckers.
The SEC alleges that London also gained access to inside information about impending mergers involving two former KPMG clients – RSC Holdings and Pacific Capital. London tipped Shaw with the confidential details. Shaw made nearly $192,000 by purchasing RSC Holdings stock the day before its Dec. 15, 2011, merger announcement. He made more than $365,000 in illicit profits from his well-timed purchase of Pacific Capital securities prior to a merger announcement on March 9, 2012.
According to the SEC’s complaint, in addition to the bags of cash and the Rolex watch valued at $12,000, Shaw gave London several pieces of expensive jewelry for his wife and routinely covered the costs of dinners and concerts the two men shared along with their families.
The SEC’s complaint charges London and Shaw with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a final judgment permanently ordering them to disgorge ill-gotten gains plus pay prejudgment interest and financial penalties, and enjoining them from future violations of these provisions of the federal securities laws.
The SEC’s investigation, which began in mid-2012 and is continuing, has been conducted by William Fiske and Marc Blau of the Los Angeles Regional Office. The SEC’s litigation will be led by Lynn Dean. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Central District of California and the Federal Bureau of Investigation. The SEC also appreciates assistance from the Financial Industry Regulatory Authority (FINRA), Options Regulatory Surveillance Authority (ORSA), and Chicago Board Options Exchange (CBOE).
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