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Scott London pleads guilty to insider trading at KPMG

Scott London, 50, faces up to 20 years in prison for disclosing privileged information about KPMG's clients to a friend. London says he did it to help out the friend's business.

July 02, 2013|By Stuart Pfeifer
  • Former KPMG auditing partner Scott London admitted in U.S. District Court in Los Angeles that he had disclosed privileged information about KPMG’s clients to a friend. Above, London outside court last month.
Former KPMG auditing partner Scott London admitted in U.S. District Court… (Ted Soqui, Bloomberg )

Former KPMG auditing partner Scott London pleaded guilty to an insider-trading charge, and struggled afterward to explain why he jeopardized his career, reputation and freedom for money he didn't need.

London, 50, admitted in U.S. District Court in Los Angeles on Monday that he had disclosed privileged information about KPMG's clients to a friend, knowing the tips would be used to trade stocks.

District Judge George H. Wu ordered London to return Oct. 21 for sentencing. The conviction carries a maximum term of 20 years in prison.

"It was probably the worst day of my life," London said moments after entering the guilty plea. "Imagine what you do, you do it for 30 years, you go to school for it, and in a matter of weeks it's all gone. It's my fault."

As a senior partner at giant KPMG, London oversaw audits of public companies, including nutritional products firm Herbalife Ltd. in Los Angeles and footwear maker Skechers USA Inc. in Manhattan Beach.

He admitted that he gave inside financial information about those companies to a friend, Bryan Shaw, who used it to make profitable stock trades. He said Shaw paid him about $50,000 in cash, a Rolex watch and jewelry after the trades, which were made from 2010 to 2012.

"I didn't do it for money," London said in a hallway outside Wu's courtroom. "I did it to help out someone whose business was struggling. It was a bad, bad mistake."

The money he accepted "was not material to my income level," he said. London is free on $150,000 bond.

Shaw, an Encino jeweler, pleaded guilty to a conspiracy charge in May. He is scheduled to be sentenced Sept. 16. His lawyer, Nathan Hochman, declined to comment about whether his client was struggling financially at the time.

Both men have acknowledged that London gave Shaw sneak previews of company earnings reports and told him about acquisitions involving KPMG clients before they were made public, and that Shaw used the information to make trades.

London gave Shaw information 14 times about KPMG clients, said Assistant U.S. Atty. Jim Bowman, who prosecuted the case.

Shaw has admitted giving London tens of thousands of dollars in cash in exchange for the information about KPMG's clients.

According to court documents, Shaw said he typically arranged to meet London on a side street near Shaw's business so he could give London bags containing $100 bills wrapped in bundles of $10,000.

London said he had assumed that Shaw made about $200,000 on the trades, not the nearly $1.3 million that Shaw ultimately acknowledged to law enforcement officials.

"When I saw the amount … I about threw up," London said. "He never told me what he purchased and how much he made."

He said Shaw paid him $50,000 cash and told him that was about one-third of the profits, leaving him with the impression that Shaw made no more than $200,000.

"When the FBI confronted me, my thought was, I needed to confess to protect the clients and the firm. They had no involvement in what I had done," London said. "The FBI felt that what they saw between Mr. Shaw and myself was more pervasive. It was just me and Mr. Shaw, and no one else was involved."

Word of London's breach of trust caused KPMG to resign as auditor for Herbalife and Skechers. Both companies later hired new auditing firms.

As part of his sentence, London could be required to pay restitution to the companies if they claim his actions hurt them financially. London said he didn't expect that to happen, in part, because shares of both companies are trading higher than they were when KPMG resigned.

London said that thinking about the next part of his life has helped him deal with the shame of his actions. He said he'll need to find a new way to make money because he has two children, a son and a daughter, both in college.

"The only thing I'm thinking about is the future. I need to look forward," he said. "I think I'm relatively young. I need to provide for my family. I need to earn a living. I'll do whatever it takes. I have a lot to offer companies. I just need a second chance."

London's attorney, Harland Braun, said London's cooperation and early admission of guilt should be a consideration at sentencing. Braun said that by disclosing all he had done, London helped calm concerns that it could have been a scandal involving more traders and more companies.

stuart.pfeifer@latimes.com

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