NEW YORK (AP) -- The accountant and the jeweler were longtime friends and golf partners. But the accountant was passing private information about two companies to the jeweler, who used it to play the stock market. Now they're both under federal investigation, their reputations unraveling on a very public stage.
Federal prosecutors and the Securities and Exchange Commission on Thursday filed criminal and civil charges against fired KPMG partner Scott London for conspiracy to commit securities fraud through insider trading. The 24-page affidavit filed in support of the criminal complaint alleges that London, 50, of Agoura Hills, Calif., provided confidential information about KPMG clients Herbalife (NYSE: HLF ) , Skechers USA (NYSE: SKX ) , Deckers Outdoor (NASDAQ: DECK ) , RSC Holdings, and Pacific Capital to Bryan Shaw, a close friend, from late 2010 until last month. Prosecutors allege that Shaw made more than $1.2 million in illicit profits by trading in advance of company announcements on earnings results or mergers.
The government alleges that on some occasions, London called Shaw two to three days before press releases were issued for KPMG clients and read confidential information from the draft releases to Shaw. London, who worked for KPMG for nearly 30 years, also disclosed confidential information about impending mergers concerning KPMG clients before that information was made public, and discussed how to structure Shaw's purchases of the stock in certain companies in order to protect them from being discovered, according to the complaint.
Shaw passed London "tens of thousands of dollars in cash" in bags over the years for the information, according to the government. London also received a $12,000 Rolex watch, as well as jewelry for his wife and concert tickets. London's lawyer Harland Braun has said London received "about $25,000" over several years. The SEC puts the cash sum at at least $50,000.
The scandal has unfolded in pieces this week. Late Monday KPMG announced it fired a Los Angeles partner who leaked nonpublic information about companies that KPMG worked with. On Tuesday nutritional supplement maker Herbalife and shoe seller Skechers announced that they were the companies whose information was leaked. On Wednesday, London publicly identified himself through his lawyer and issued a statement saying that he deeply regretted his actions and was just trying to help a friend struggling after his family run jewelry business began faltering in the economic downturn.
Thursday brought one of the remaining pieces of the puzzle when Bryan Shaw identified himself as that friend. The two men had met at a country club several years earlier and became close friends and golfing partners.
In a statement through his lawyer, Nathan Hochman, Shaw said he received information from London "about a number of companies" from 2010 to 2012. He said he had "profited substantially" from trading stocks based on that information, but he didn't provide details.
"I cannot begin to apologize for my incredibly stupid actions," said Shaw. "There is no excuse for my wrongful conduct. I accept full and complete responsibility for what I have done and know that I will spend the rest of my life trying to make up for my tragic lapses of judgment."
Hochman said Thursday that Shaw received a government subpoena several months ago and has been cooperating with the investigation. "As part of that cooperation, he agreed to make monitored phone calls with Mr. London, and have monitored meetings with him as well," Hochman said in an emailed statement.
London has said that he never leaked any documents. He described the interactions as his friend asking whether a stock was a good buy and London offering suggestions. He is expected to make his first court appearance later Thursday in Los Angeles.
The SEC is seeking unspecified penalties and restitution against London and Shaw. The federal charge of conspiracy to commit securities fraud through insider trading against London carries a maximum penalty of 5 years in prison, and a fine of at least $250,000.