KPMG Scott London Insider Trading1
KPMG Scott London: Insider Trading
Krystal Johnson
521/MGT - Management
October 6, 2013
Mr. Kevin Stone
KPMG Scott London: Insider Trading
Background
Scott London was the audit partner at one of the largest accounting firms in the United States, KPMG. Between October 2010 and May 2012, London gave confidential information regarding several firms to his golfing friend Bryan Shaw, who was a jewelry store owner, then traded stocks with the information provided. The firms that were compromised included Herbalife, Ltd., Skechers USA, Inc., Deckers Outdoor Corp., RSC Holdings, Inc. and Pacific Capital Bancorp. In May 2011, Shaw was able to purchase several thousand shares of Herbalife stock prior to the quarterly financials were to be reported. With record breaking sales for the past quarter, stocks rose thirteen percent. After a few days, Shaw sold his shares and earned roughly $450,000. In February 2012, Shaw was informed by London that Pacific Capital was going to be purchased by Union Bank. Again, Shaw purchased thousands of shares, just to sell them a few days after the announcement, which rose fifty-seven percent, and allowed him to profit around $365,000 (Pfiefer, 2014). In total, Shaw was able to make over $1.6 million in profits just with information from London. Shaw repaid London for the information that he provided with $70,000 in cash, concert tickets, elaborate dinners and a $12,000 Rolex watch.
With near perfect transactions, the Federal Bureau of Investigations (FBI) approached Shaw. Frighten of the consequences, Shaw agreed to cooperate with the FBI by secretly recording conversations and being photographed as cash was exchanged with London.
Impact on the Organization and Other Stakeholders Due to the choices that London made and lack of judgmental and unethical behavior, the firms that were compromised suffered the most. Sketchers and Herbalife not only lose their auditing firm due to London, but had to obtain a new firm and restate
Krystal Johnson
521/MGT - Management
October 6, 2013
Mr. Kevin Stone
KPMG Scott London: Insider Trading
Background
Scott London was the audit partner at one of the largest accounting firms in the United States, KPMG. Between October 2010 and May 2012, London gave confidential information regarding several firms to his golfing friend Bryan Shaw, who was a jewelry store owner, then traded stocks with the information provided. The firms that were compromised included Herbalife, Ltd., Skechers USA, Inc., Deckers Outdoor Corp., RSC Holdings, Inc. and Pacific Capital Bancorp. In May 2011, Shaw was able to purchase several thousand shares of Herbalife stock prior to the quarterly financials were to be reported. With record breaking sales for the past quarter, stocks rose thirteen percent. After a few days, Shaw sold his shares and earned roughly $450,000. In February 2012, Shaw was informed by London that Pacific Capital was going to be purchased by Union Bank. Again, Shaw purchased thousands of shares, just to sell them a few days after the announcement, which rose fifty-seven percent, and allowed him to profit around $365,000 (Pfiefer, 2014). In total, Shaw was able to make over $1.6 million in profits just with information from London. Shaw repaid London for the information that he provided with $70,000 in cash, concert tickets, elaborate dinners and a $12,000 Rolex watch.
With near perfect transactions, the Federal Bureau of Investigations (FBI) approached Shaw. Frighten of the consequences, Shaw agreed to cooperate with the FBI by secretly recording conversations and being photographed as cash was exchanged with London.
Impact on the Organization and Other Stakeholders Due to the choices that London made and lack of judgmental and unethical behavior, the firms that were compromised suffered the most. Sketchers and Herbalife not only lose their auditing firm due to London, but had to obtain a new firm and restate
References: Byrnes, N. (2013, April 11). Analysis: Insider trading probe impact on KPMG expected to be short-lied. Retrieved October 2, 2014, from http://www.reuters.com/article/ 2013/04/11/us-usa-accounting-kpmg-impact-idUSBRE93A16620130411 KPMG, LLP. (2010). KPMG’s Code of Conduct Our Promise of Professionalism. Retrieved October 4, 2014, https://www.kpmg.com/US/en/about/Documents/kpmg-code-of-conduct.pdf Pavlo, W. (2014, June 16). Fmr KPMG Partner Scott Londo Shares Cautionary Tale Before Prison. Retrieved October 2, 2014, from http://www.forbes.com/sites/walterpavlo/ 2014/06/16/fmr-kpmg-partner-scott-london-shares-cautionary-tale-before-prison/ Pfeifer, S. (2014, April 24). KPMG partner who gave tips to golf buddy sentenced for insider trading. Retrieved October 2, 2014, from http://www.latimes.com/business/la-fi-mo-kpmg-scott-london-sentencing-story.html Snyder, R. (2014, June 2). Bryan Shaw sentenced to prison in KPMG insider trading case. Retrieved October 2, 2014, from http://www.latimes.com/business/la-fi-insider-sentencing-20140603-story.html