This article by  Andrew Snyder first appeared in the March/April 2017 issue of Fraud Magazine, a publication of the Association of Certified Fraud Examiners, Austin, TX © 2017. Re-posted here with permission.

Scott London, a senior partner at a Big 4 accounting firm, shared inside secrets to help a buddy in a tight financial spot. After following the rules for 26 years, why would he commit fraud? Insider traders – mostly males – do it for the money, of course, but they’re also influenced by hubris, feelings of conquest, playing seduction games and adrenaline highs.

Scott London seemed to have had it all. A senior partner at a Big 4 accounting firm, he had success, prestige and a big salary. Even so, his career and personal life would come undone when FBI agents showed up at his home in March 2013 investigating his insider trading with his friend, Bryan Shaw.

Insider Trading Insider Traders
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Insider Traders

The story broke in the news along with a surveillance photo of Scott London receiving a bag containing cash from his buddy, Shaw. London had already informed his bosses at KPMG, and they summarily fired him. His wife found out about his crime on her birthday when she got home after the FBI agents had gone.

When London spoke with news reporters after he was charged with securities fraud and insider trading, he was unable to answer why he’d passed tips. He knew better, he said, but he did it anyways. It began when he tried to help Shaw whose business had fallen on tough times.

When I watched the news video of Scott London it was painfully obvious he was ashamed of his behavior and at a loss to fully explain it. He’d betrayed others and caused harm to his firm and its clients, and his loved ones.

I appreciated that he wasn’t attempting to manipulate the press with excuses, and he seemed to be searching for why he’d sabotaged his career and his reputation. As a practicing psychotherapist, I observe a person’s affect, their expressions and whether they match the words they’re saying. I concluded that London was genuine, and more likely than not, he had a conscience.

London received a 14-month sentence, which was reduced by two months for good behavior, and he was out in 2015. Bryan Shaw was sentenced to five months. He was released in November 2014, according to the Bureau of Prisons.

Why did London commit fraud?

After working with criminal elements for more than 30 years, I can usually detect a manipulator quickly enough. As a young correctional officer in California, every day I was exposed to all sorts of them. None were probably more capable of manipulation than Charles Manson, who was a porter assigned to work for me. The wisest answer you can give these types when they come asking for something from you is “NO.”

London contended he only had himself to blame for his actions. But was he entirely correct? He sat for an interview with me after his release from prison for my podcast, “Prison Life” and talked about what led up to his involvement in the insider-trading scheme with Shaw. He reiterated that he was helping a friend.

Several key points struck me in his case. London had worked in the same position at KPMG for nine years overseeing audits. The extended hours and traveling had taken a toll on him. He’d been asking his bosses for a job change for three years, but his pleas had fallen on deaf ears. During our interview, he said he felt betrayed.

Around the same time, Shaw had pieced together bits of information and had already began making trades and profiting without London’s knowledge. He later told London he’d made trades on what he had gleaned and proposed he could make more money with more information.

London told me he at first objected but then went along and rationalized what he and Shaw were doing. He believed that if they kept the trading to small amounts they wouldn’t get caught, and if they were detected they’d be asked to “leave” like card counters at a casino. (Card counting is a skill and isn’t considered cheating; casinos can’t have you arrested, but they’ll tell you to leave and not return.)

The Financial Industry Regulatory Authority (FINRA), an independent industry regulator funded by Wall Street, detected and reported Shaw’s suspicious trades. His brokerage account was suspended, and he and London decided to quit their trading.

What London didn’t know was Shaw soon afterward received a subpoena from the Securities and Exchange Commission (SEC) investigating their trading. Shaw could’ve told London right away that they were headed for big trouble, but instead he hired a lawyer and began cooperating with the FBI, the SEC and the U.S. Department of Justice.

I asked London during my interview, if Shaw had told him about the subpoena, would he have gone together with Shaw and admitted his part in the scheme? He answered he would’ve, just as he’d confessed when the FBI agents first came to talk to him. At the time he didn’t know that Shaw was cooperating with the FBI and the full extent of the investigation.

All told, according to the SEC, Shaw made $1.6 million in illegal gains. Shaw gave London about $50,000 in money and gifts for his help and information.

Dr. Gilman ruins brilliant career with ties to Martoma

I see parallels in London’s case to another highly publicized insider trading case. I sat in U.S. District Judge Gardephe’s Manhattan courtroom two years ago for the sentencing of former SAC Capital portfolio manager Mathew Martoma for his part in the largest insider trading case in U.S. history. Prosecutors urged for a lengthy prison sentence and argued that Martoma had cultivated and corrupted two doctors to provide him illegal inside information. Gardephe cited a “darker side to his character” before sentencing Martoma to nine years in prison.

One of the physicians, Dr. Sidney Gilman, became a principal character in the Martoma case and testified at his trial. He recounted during his testimony that in the beginning he might have carelessly provided secret details to Martoma about the Alzheimer drug tests of pharmaceutical companies Elan and Wyeth. But as his friendship grew with Martoma so did the details of results of the drug tests he gave to him.

After Martoma got what he was after and made his millions, he never again spoke with Gilman. In the end, Gilman was spared prosecution and an almost certain prison sentence. He had a non-prosecution agreement requiring his cooperation. His career and reputation, however, were destroyed. The University of Michigan Medical School forced him to resign his position of 35 years. He now cares for patients in a free clinic.

Rajaratnam seduced victims like Casanova

Raj Rajaratnam’s trading career could be a case study, unfortunately, in how it’s all too easy to corrupt corporate insiders.

Rajaratnam was one of the most prominent and successful investors on Wall Street, founder of the multibillion-dollar hedge fund Galleon Group, until he was arrested in 2009 for insider trading crimes.

Prosecutors at the time declared Rajaratnam “the modern day face of illegal insider trading.”

The case against him was based on wiretapped phone

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