Prosecutors filed a criminal charge against disgraced former KPMG partner Scott London, saying he gave a stock-trading friend inside information about his firm's clients in exchange for cash, jewelry and expensive dinners.
The criminal case filed Thursday in federal court in Los Angeles conflicted with the version a contrite London gave reporters earlier this week; London said that the information he gave his buddy was sparse and that his involvement in the stock trades was minimal.
Prosecutors, however, said in court papers that London was intimately involved in the illegal trades made by his golfing pal, Bryan Shaw, an Encino jeweler.
London, who worked in KPMG's Los Angeles office, told Shaw when to buy, when to sell and how to attract the least attention while reaping huge profits, prosecutors said. They cited dozens of telephone calls between the two men in the days before market-moving news.
The accountant also read Shaw financial news releases days before they were made public, prosecutors said. He allegedly told Shaw about acquisitions involving KPMG clients, giving Shaw an edge that helped him generate more than $1.2 million in profits. At least five companies allegedly were involved, including Herbalife Ltd., a Los Angeles nutritional products company, and Skechers USA Inc., a Manhattan Beach footwear company.
After Shaw sold shares for a profit, he'd meet London on a quiet San Fernando Valley street and hand him cash: $100 bills in $10,000 bundles, the criminal complaint said.
"London would usually remark that Shaw was too generous and did not have to pay him for the information, but London always took the cash," prosecutors said in the criminal complaint.
In an interview with The Times earlier this week, London said he might have accepted $25,000. The Securities and Exchange Commission, in a regulatory lawsuit filed Thursday, put the number at close to $50,000.
On top of that, London accepted a $12,000 Rolex watch from Shaw, prosecutors said. Shaw told law enforcement officials that he probably spent $25,000 to $45,000 on tickets to rock concerts — including one by Bruce Springsteen — that he and London attended.
Federal prosecutors charged London with one count of conspiracy to commit securities fraud through insider trading. The charge carries a possible sentence of five years in prison. London made a brief appearance in federal court Thursday and was released on $150,000 bond.
The Agoura Hills resident intends to plead guilty next month, defense attorney Harland Braun said. He said London still can't explain why he violated his clients' trust for money that he didn't need.
"It's just inexplicable," Braun said. "I'm sure somewhere deep in his psyche, someone might be able to explain it, because things don't happen without a cause."
Andre Birotte, the U.S. attorney for Los Angeles, said it's important for the government to go after insider-trading cases to keep the financial markets on an even playing field.
"He was an auditor at a company that was entrusted to protect the information of respected companies," Birotte said. "To take that information and provide it to at least one other individual for profit feeds into that perception that the markets are tilted and only for those who are privileged and have inside information."
As the partner in charge of audits in Los Angeles, London supervised hundreds of accountants. He had access to financial secrets of dozens of publicly traded companies, secrets that he and KPMG were obligated to keep quiet.
London started to violate that trust in 2010, when he gave Shaw advance word about Herbalife's earnings and acquisitions of KPMG clients, prosecutors said.
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 in the days to follow, 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.
A few months later, Shaw told London he was worried because Fidelity Investments had put a hold on his brokerage account — a sign the firm might have detected the insider trading. London told him not to worry, according to prosecutors.