KPMG Tipster Charged

Apr 12 2013 | 12:44pm ET

The former KPMG partner accused of passing tips about Herbalife and several other companies to a golfing buddy has been charged with insider-trading and will plead guilty.

Scott London was fired by KPMG a week ago, after it emerged that he had disclosed confidential information about several clients to someone who had traded on the information. KPMG resigned as auditor to both Herbalife and Skechers, forcing a suspension in the former's trading on Monday in the midst of its battle with Pershing Square Capital Management's William Ackman, who has called the company a pyramid scheme.

London was freed on $150,000 bail. His lawyer said that he would plead guilty at his next court hearing, on May 17. He faces up to five years in prison.

"As a leader at a major accounting firm, London's conduct was an egregious violation of his ethical and professional duties," Michele Wein Layne, head of the SEC' Los Angeles office, said.

The beneficiary of London's tips, Los Angeles-area jeweler Bryan Shaw, was not charged criminally, although both men were named in a Securities and Exchange Commission lawsuit. Shaw has been cooperating with authorities since earlier this year, participating in a sting operating in which he gave London $5,000 in exchange for tips.

Shaw, who has said he expects criminal charges, also recorded calls with London and wore a wire when meeting with him.

During the three years of their scheme, Shaw also gave London tens of thousands of dollars, Bruce Springsteen tickets and a $12,000 Rolex watch. For his part, Shaw earned more than $1.27 million trading on London's information, advance notice of earnings or mergers.

The government also said that London provided tips about three other companies to Shaw: Deckers Outdoor, Pacific Capital Bancorp and RSC Holdings.

For its part, KPMG said it would sue London, with its CEO calling himself "appalled" by the new details released yesterday, which show a much more wide-ranging scheme involving more companies and more illicit payments to London. The legal action will come "in the near future," CEO John Veihmeyer said.

"We unequivocally condemn his actions, and deeply regret the impact that his violations of trust and the law have had on our clients and our people," Veihmeyer said.

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