Former KPMG partner sentenced for insider trading

“I’m embarrassed and ashamed,” former KPMG partner Scott London said at his sentencing. Above, he leaves the courthouse.
“I’m embarrassed and ashamed,” former KPMG partner Scott London said at his sentencing. Above, he leaves the courthouse.
(Mark Boster / Los Angeles Times)

A former partner at the Los Angeles office of accounting giant KPMG was sentenced to 14 months in federal prison for giving confidential information about his firm’s clients to a golfing buddy, who used it to make more than $1 million in profits by trading those companies’ stocks.

Scott London, 51, pleaded guilty to insider trading last year, admitting that he repeatedly tipped off a friend to the secrets of several KPMG clients, including Herbalife Ltd. and Skechers USA Inc., from 2010 to 2012. In exchange, his friend, Bryan Shaw, gave him thousands of dollars in cash, a Rolex watch, jewelry and concert tickets.

U.S. District Judge George Wu issued the sentence Thursday in Los Angeles, moments after London apologized for his crimes. He also ordered London to pay a $100,000 fine.


“I’m embarrassed and ashamed,” London said, his voice quivering. “I disappointed everyone close to me. Most of all, I disappointed myself.”

London then returned to his seat and wiped away tears.

Defense attorney Harland Braun had argued for a sentence of six to 12 months, saying his client had already paid dearly for his crime: losing his $900,000-a-year job and damaging his reputation and future job prospects.

Outside the courtroom, Braun said he thought the sentence was fair. London declined to comment and left the courthouse in the company of several family members.

Assistant U.S. Atty. James A. Bowman had argued for a three-year prison sentence, saying London had victimized companies that trusted him with their financial secrets. Herbalife and Skechers each had to have earnings reports re-audited as a result of London’s conduct.

“He betrayed his clients,” the federal prosecutor said. “They viewed him as having such strong ethics ... and he was willing to betray that.”

He also noted that London had admitted to providing tips on 14 occasions to Shaw, evidence that “it wasn’t a one-time thing.” The payments Shaw made to London — often on streets near Shaw’s jewelry store — showed that London was personally profiting from his crimes.


“Any time ... you’re on a street corner accepting bags of cash, you’re part of a corrupt organization and you know it,” Bowman said.

The judge said the case was unusual because London’s key motivation was helping Shaw, not enriching himself. He said the payments London received were “a drop in the bucket” compared with his salary.

Still, it was important to impose a prison sentence as a deterrent, he said.

KPMG issued a statement after the sentencing: “It was appropriate that Scott London was held accountable today for the consequences of his illegal and unethical actions.”

London, a resident of Agoura Hills, was a senior partner at KPMG in charge of the audit practice for clients in California, Arizona and Nevada. He also personally oversaw audits of Herbalife and Skechers. He worked at the company for 30 years.

He gave Shaw tips on several companies, reading him news releases before they were issued, telling him about planned acquisitions and giving him advance word about company earnings, prosecutors said.

The tips enabled Shaw to make numerous profitable trades.

Shaw snapped up thousands of Herbalife shares in the weeks before a May 2011 announcement of the company’s record sales, prosecutors said. The news drove Herbalife shares up 13%. Shaw sold his shares within days, netting about $450,000 in profit.


In February 2012, London told Shaw that KPMG client Pacific Capital Bancorp was about to be acquired by Union Bank, prosecutors said. Pacific Capital’s shares soared 57% when the news was announced in March 2012. Shaw made $365,000.

The scheme unraveled after regulators became suspicious of Shaw’s well-timed trades. Shaw agreed to cooperate in an investigation of London, secretly recording their conversations and handing him an envelope stuffed with cash while FBI agents snapped photographs.

Shaw, who pleaded guilty to conspiracy to commit insider trading, is scheduled to be sentenced May 19.

In April 2012, KPMG stunned the accounting world by announcing it had fired London and withdrawn several audits of nutrition company Herbalife and footwear maker Skechers. The criminal case was filed a few days later.

London, in an interview with The Times last year, said he could not explain his actions.

“I have no idea what I was thinking,” he said. “I don’t know why there was a lapse of judgment, but there was.”


Twitter: @spfeifer22