KPMG Partner Strikes Plea Deal In Herbalife Insider Case

May 29 2013 | 9:48am ET

The former KPMG partner whose sale of tips about Herbalife added uncertainty to the battle between two hedge fund managers over the nutritional supplements company will plead guilty to insider-trading.

Scott London reached a plea agreement with federal prosecutors in Los Angeles. He will plead guilty to securities fraud, and faces up to 20 years in prison and up to $5 million in fines.

London's deal comes a week after the beneficiary of his tips, jeweler Bryan Shaw, entered his own guilty plea. There was little suspense about it: London admitted wrongdoing in April, when he was arrested. He is set to appear in court on Friday, although the U.S. Attorney's Office in L.A. said that would likely be delayed.

London allegedly received tens of thousands of dollars from Shaw for confidential information about several companies audited by KPMG, including Herbalife, the subject of a high-profile battle between hedge fund managers William Ackman and Carl Icahn. His arrest led Herbalife, which Ackman has called a pyramid scheme, to resign as the company's auditor; it was replaced by PricewaterhouseCoopers last week.

As part of the plea deal, London will admit to passing Shaw inside information about 14 earnings or acquisition announcements by KPMG clients.

Shaw, London's former golfing partner, has been cooperating with authorities since earlier this year, participating in a sting operation and recording conversations with London.

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