Guilty plea in KPMG insider-trading case
A San Fernando Valley jeweler at the center of an insider-trading scandal pleaded guilty to a conspiracy charge and agreed to turn over $1.27 million in ill-gotten stock gains made from tips from a top auditor at accounting giant KPMG.
Bryan Shaw, 52, of Lake Sherwood admitted Monday to conspiring with KPMG auditor Scott London to trade in the stocks of the accounting firm’s clients. The pair, who became friends after meeting on a golf course, plotted to profit from the market in what federal prosecutors described as a “severe breach of trust.”
With a swift “Guilty, your honor,” Shaw entered his plea before U.S. District Judge George Wu in downtown Los Angeles.
The judge asked whether restitution was appropriate in this case. Lawyers for the federal government said the losses incurred by shareholders would be nearly impossible to calculate.
Shaw, who is free on bond, is scheduled to be sentenced Sept. 16. In addition to forfeiting profits to the Securities and Exchange Commission, he could face up to five years in prison, three years’ probation and a fine.
Prosecutors said they will recommend a reduced sentence if Shaw provides “substantial assistance” during their investigation.
The jeweler, wearing a black suit and tie, answered the judge’s questions quickly and showed little emotion during his plea. Shaw declined to comment after the proceeding and directed questions to his lawyer.
Outside the courthouse, 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.”
Hochman said he hopes that Shaw’s accepting responsibility, cooperating with investigators, forfeiting his gains and lack of a criminal record will be reflected in his sentencing.
The federal government alleges that London, 50, a longtime employee of KPMG’s Los Angeles office, gave Shaw tips about several companies. The two highest-profile tips centered on nutritional products maker Herbalife Ltd. and footwear company Skechers USA Inc.
Shaw said 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 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. Although he has yet to enter a plea, London has publicly admitted his role in the insider-trading scheme.
A quick admission of guilt, whether in court or the news media, is rare, said Jim Bowman, assistant U.S. attorney.
“This case is unusual in that both men admitted guilt before they were charged,” Bowman said. “It speaks to the strength of the evidence.”
He pointed to a photo of Shaw, acting at the direction of the FBI, meeting London this year and handing him a bag containing $5,000 in cash as payment for a tip. A photograph of that exchange, taken by FBI agents, was included in a criminal complaint filed against London.
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 was 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 SEC in December, the attorney said.
Shaw later made a confession to SEC and Justice Department lawyers, agreeing to cooperate against London, Hochman said.
Moments before Shaw’s guilty plea, Judge Wu asked Shaw’s attorney whether they had discussed the decision.
“We agreed it is in his best interest,” Hochman said.
Times staff writer Stuart Pfeifer contributed to this report.
