A San Fernando Valley jeweler pleaded guilty Monday to a conspiracy charge in an insider-trading case and agreed to turn over $1.27 million in stock-trading gains made from tips allegedly provided by a then partner at accounting giant KPMG.
Bryan Shaw, 52, of Lake Sherwood admitted to conspiring with KPMG auditor Scott London to trade in the stocks of the accounting firm’s clients. The pair was longtime friends who enjoyed golfing together.
With a swift “Guilty, your honor,” Shaw entered his plea before U.S. District Court Judge George H. Wu in Los Angeles.
The judge asked whether restitution was appropriate for this case. Lawyers for the federal government said the losses incurred by others would be nearly impossible to calculate.
Shaw’s sentencing was set for Sept. 16. In addition to forfeiting his ill-gotten gains, he faces as much as five years in prison and a possible fine.
Prosecutors said they would recommend a reduced sentence if Shaw provides “substantial assistance” during its investigation.
Outside the courtroom, Shaw’s attorney, Nathan Hochman, said his client had a simple motivation for his plea.
“He pled guilty because he is guilty,” Hochman said. “Mr. Shaw, as he’s been heard saying, made some incredibly stupid decisions.”
The federal government alleged that London, 50, a longtime employee of KPMG’s Los Angeles office, gave Shaw inside tips about several companies, including nutritional products maker Herbalife Ltd. and footwear company Skechers USA Inc., and that Shaw used the information to make profitable trades.
Shaw admitted that he paid London for the tips, giving him more than $60,000 in cash, a $12,000 Rolex watch, jewelry for his wife, concert tickets and expensive meals. The cash payoffs were sometimes made on secluded streets near Shaw’s Encino jewelry store, prosecutors said.
Federal prosecutors have charged London, 50, with conspiracy to commit insider trading. London, who was fired by KPMG last month, is scheduled to be arraigned May 30 in U.S. District Court in Los Angeles.
At one point, Shaw garnered gains of $450,000 on Herbalife stock, and the two men believed that they could make even more, according to the complaint in London’s case.
In one call, London referred to rumors that Herbalife may be going private, telling Shaw “that is going to be where you make a ton of money.”
London allegedly called Shaw and read him draft versions of news releases days before they went public, according to court documents. He also advised Shaw how to structure stock purchases to protect them from being discovered, prosecutors said.
The scheme began unraveling when Fidelity Investments apparently discovered the suspicious trades in Shaw’s account and froze it, said Shaw’s attorney, Hochman. Shaw received a subpoena to appear before the Securities and Exchange Commission in December, the attorney said.
Shaw later made a confession to SEC and Justice Department lawyers, agreeing to cooperate against London, Hochman said.
“One can make a logical conclusion that Fidelity probably alerted the SEC,” the defense lawyer said.
Acting at the direction of the FBI, Shaw met London earlier this year and handed him a bag containing $5,000 in cash as payment for a past tip. A photograph of that exchange, taken by FBI agents, was included in a criminal complaint filed against London.
KPMG resigned as the auditor of Herbalife and Skechers after learning of London’s conduct.
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