Federal prosecutors charge ex-KPMG auditor Scott London

The U.S. Department of Justice has charged Scott London, the former KPMG auditor who passed non-public information about Herbalife Ltd. and Skechers USA Inc. to a friend, with criminal insider trading.

London, 50, is scheduled to be arraigned at 2 p.m. at the federal courthouse in Los Angeles on Thursday, said his attorney, Harland Braun.

London is accused of passing tips to his friend, Bryan Shaw, an Encino jeweler, who used the information to make about $1 million in stock trades on the two companies.

Shaw, in turn, rewarded London with about $25,000 in cash, a Rolex watch and fancy dinners, London said in an interview with The Times.

According to the DOJ’s complaint, the KPMG insider trading scam was far more profitable than earlier known -- $1 million instead of the $100,000 that London claimed -- and went longer than thought.

Full coverage: KPMG auditor accused of insider trading

The criminal complaint filed in federal court Thursday also portrays London as far more culpable and intimately involved in all details of the trading scandal than he had previously acknowledged with The Times and other media outlets.

In some cases, London called Shaw two to three days before press releases of KPMG clients were issued and read him the details that would soon be made public. He also tipped him off to mergers and even strategized with Shaw on how to conceal his trading so that the two would not be caught.

In a statement released Wednesday, Shaw said:

“During 2010 through 2012, I received non-public information from Scott London about a number of companies and then profited substantially from stock trades based upon that information. I cannot begin to apologize for my incredibly stupid actions. 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. Over the past several months, I have fully cooperated with the FBI, the [Securities Exchange Commission], and the U.S. Department of Justice in their ongoing investigation of this matter. I expect that my actions will result in significant civil and criminal consequences, but I realize that this is the painful price I will pay for my transgressions.”

Criminal complaint filed against Scott London

The insider-trading scandal that rocked Wall Street began late Monday when KPMG announced it had fired a high-ranking staffer, later revealed to be London. The accounting giant said the executive had allegedly been involved in insider trading of prominent companies whose audits he handled.

On Tuesday, nutritional supplement maker Herbalife and footwear company Skechers said KPMG had abruptly resigned as their outside auditor because of the alleged misconduct.

Trading in stocks of the two local companies was temporarily suspended.

KPMG was approached by the Justice Department late last week and told that London, who was a partner in KPMG’s office in downtown Los Angeles, was under investigation, according to a person briefed on the matter. London was fired less than 24 hours later.

The firm in a statement described the executive as a “rogue” employee who “acted with deliberate disregard for KPMG’s long-standing culture of professionalism and integrity.”

London, the partner in charge of audit services for KPMG’s Pacific Southwest region, spent years working with Herbalife and Skechers, a Manhattan Beach company. He has been a certified public accountant since 1986.

In an interview with The Times on Tuesday, the 50-year-old said he couldn’t explain why he shared the tips with his friend, alternately toggling between acknowledging his wrongdoing and describing the information he provided as bare-bones.

“Every day since this occurred I’m saying to myself how stupid I am,” London said. “I have no idea what I was thinking. I don’t know why there was a lapse of judgment but there was.”

London said he barely benefited.

“I gained very little,” London said. “He gained a lot and yet I bore all the risk.”

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