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Scott London’s 30-year career at top accounting firm KPMG ended in a Los Angeles parking lot last month, when federal agents secretly snapped him accepting $5,000 in cash for leaking stock tips about his clients.
For nearly two years, he provided his jeweler friend Bryan Shaw with confidential information about companies he audited in exchange for payoffs: $100 bills in $10,000 bundles, a $12,000 Rolex Daytona Cosmograph watch and tickets to a Bruce Springsteen concert, according to a federal criminal complaint filed yesterday.
London, 50, gave Shaw tips about upcoming earnings announcements and mergers involving five KPMG clients, prosecutors allege. Earlier this week, KPMG fired London and resigned as auditor for two clients — Herbalife and Skechers.
Shaw, 52, earned about $1.27 million from the illicit activity that began in November of 2010 and continued until May of 2012, prosecutors allege. Authorities were alerted to the suspicious trading after the brokerage handling Shaw’s trades closed his account.
On Feb. 8, Shaw began cooperating with the FBI and soon surreptitiously recorded several conversations with London about Herbalife, the complaint revealed. By then, Herbalife had become a battleground between billionaires Bill Ackman, who was shorting the stock, and Carl Icahn, who was long.
“London told Shaw that he believed that Herbalife’s stock would go up [after it released earnings], but that he was concerned about hedge-fund manager Bill Ackman driving down the price,” the complaint said.
London mentioned rumors about Herbalife going private — which surfaced after Icahn got involved — and speculated a deal could be juicy. “That is going to be where you make a ton of money…because, you know, we’ll know that,” he said.
London confessed to FBI agents on April 3, saying “he believed the dollar amounts were small enough that they (meaning he and Shaw) would not get caught,” the criminal complaint said.
In a statement before charges were filed, London expressed regret for his behavior and said he only got involved to help out a friend in financial distress. Shaw’s jewelry store, Shaw Diamond, had suffered during the economic downturn. But London also admitted to the FBI he had received $50,000 cash for the tips.
Shaw said, in a statement, “I cannot begin to apologize for my incredibly stupid actions. There is no excuse for my wrongful conduct.”
London also allegedly passed on quarterly earnings info about Uggs maker Deckers and told Shaw about upcoming mergers between RSC Holdings and United Rentals and Pacific Capital and Union Bank.
“Mr. London’s alleged activity paints a disturbing picture in which confidential information was compromised for personal greed at the expense of the investing public,” said Bill Lewis from the FBI’s Los Angeles office.
The criminal charges could land London up to five years in prison and a fine of up to $250,000. KPMG CEO John Veihmeyer said the firm will take legal action against London.
“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,” he said.
The Securities and Exchange Commission filed separate civil charges against both men yesterday.