The Securities and Exchange Commission charged the former partner in charge of KPMG’s Pacific Southwest audit practice and his friend with insider trading on nonpublic information about firm clients.
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 is being represented by Harlan Braun in Los Angeles.
Shaw is being represented by Nathan Hochman of Bingham McCutchen in Santa Monica.
London was also hit with a criminal complaint in Los Angeles.
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, California 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.
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.
The SEC alleged that 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.
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, California, 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.
The SEC alleged that 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.