A former partner of global auditing firm, KPMG, who admitted his involvement in an insider trading scheme of the shares of Herbalife Ltd. (NYSE:HLF) was banned from auditing public companies by the Securities and Exchange Commission (SEC).
Pacific Southwest to follow SEC order
According to The Wall Street Journal, Scott London, the former head of KPMG’s Pacific Southwest agreed to the order of the SEC that he would desist being an accountant for public companies, and he also agreed to pay a monetary penalty, which will be determined by the commission on a later date.
London admitted his wrongdoing and pleaded guilty on the securities fraud filed against him in July. His sentencing is schedule on December. The former KPMG partner confessed that he provided insider information to his friend Bryan Shaw, including earnings and proposed acquisitions of some of the clients of the accounting firm including Herbalife Ltd. (NYSE:HLF) and Skechers USA Inc (NYSE:SKX). In return, he received $60,000 and a Rolex watch worth $12,000 from Shaw.
Shaw used the information he obtained from London in trading and gained more than $1.27 million in illegal profits. Shaw also pleaded guilty on the case.
KPMG resigned as auditors
KPMG resigned as auditor of Herbalife Ltd. (NYSE:HLF) and Skechers USA Inc (NYSE:SKX) because of the insider trading scandal. The trading for the shares of both public companies was halted for two hours after the accounting firm announced its resignation. KPMG said the misconduct of its audit partner reduced its independence.
In a statement, Michele Wein Layne, director of SEC, Los Angeles office said, London’s “illegal activity caused a cascade of negative consequences because he compromised not only his impartiality, but KPMG’s as well.”
Harland Braun confirms settlement with SEC
On the other hand, Harland Braun, the legal counsel representing London, confirmed his settlement with the SEC. According to him, the monetary penalties related to the case filed by the commission against London will depend partially on his sentence in the criminal case.
Braun said, “He admitted his responsibility, so obviously it flows from that.”
Auditors charged for violating securities laws
Meanwhile, the SEC announced that three auditors were charged for violating federal securities laws or failing to comply with the auditing standards of the United Stated in auditing and reviewing the financial statements of publicly traded companies.
The three certified public accountants facing charges include Malcolm L. Pollard, Wilfred W. Hanson and John Kinross-Kennedy. According to the SEC, Pollard and Hanson agreed to settle the case and agreed to stop practicing as accountants for publicly traded companies, while Kinross-Kennedy decided to defend his case before an administrative law judge of the agency.