US authorities have charged a former KPMG partner with insider dealing after he admitted giving his golfing buddy share tips in exchange for cash, jewellery and $25,000 worth of concert tickets.
Scott London, a senior KPMG partner in southern California, was charged with conspiracy to commit fraud and for leaking non-public information about companies he audited, including diet supplement firm Herbalife and shoe company Skechers.
The complaint filed by the securities and exchange commission (SEC) said London's stock tip leaks had made his golf partner Bryan Shaw, a Californian jeweller, more than $1m (£650,000).
In exchange for the tips, Shaw gave London roughly 10% of the profits he made in the form of bags stuffed with up to $50,000 cash in $100 bills, a $12,000 Rolex watch, other jewellery and concert tickets, according to the filing.
One of London's tips was that Herbalife was about to become a private company. "That is going to be where you make a ton of money," London said, according to the criminal filing, "Because, you know, we'll know that."
US attorney André Birotte said London "chose to betray the trust placed in him as a financial auditor and to tip the trading scales for the benefit of insiders like himself".
"The public has every right to fully expect a level playing field in our financial markets" he added.
London, who was fired by KPMG immediately when it discovered he had passed on the information, said the tips began in 2010 in casual conversations with "someone I'd known from the golf club".
In an interview with the Wall Street Journal he said he didn't realise Shaw was trading on the information he was leaking. "Once he told me he had traded, that's when my heart sank," London said. "We had discussions, this wasn't right – I knew it was wrong – but it just happened."
However, London admitted he continued to provide Shaw with information about Herbalife, Skechers and Deckers Outdoors.
In a statement London said: "I regret my actions in leaking non-public data to a third party regarding the clients I served for KPMG. Most importantly, and I cannot emphasise this enough, is that KPMG had nothing to do with what I did."
KPMG has resigned as the auditor for Herbalife and Skechers after warning "that the firm's independence has been impacted".
London's lawyer Harland Braun has admitted that his client knew he was breaking the law. "But he just can't understand why he did it, and it's hard to understand why he did it," Braun told business news channel CNBC on Wednesday.
"It makes no sense. He's looking back on the years that he did it. It made no sense from a dollar-and-cents point of view; it made no sense in terms of his ethics. He's not trying to justify it in the slightest."
Braun said London's prospects were "pretty grim". "His life is ruined. He's 50 years old, he's lost his career, he'll probably lose his licence, he's been disgraced, and he may have to do some jail time. That's the best case scenario. It's a very grim reminder of the consequences for anyone who wants to leak any insider information."
London was due to appear in a federal court in Los Angeles late on Thursday. Shaw has also been charged.
Shaw has admitted he "profited substantially from stock trades" on a number of companies on which London provided "non-public information".
He said he had been incredibly stupid, and was co-operating with the FBI, SEC and US Department of Justice.
"I expect that my actions will result in significant civil and criminal consequences, but I realise that this is the painful price I will pay for my transgressions," he said in a statement before the charges were filed.
When Shaw's brokerage firm, Fidelity, noticed his unusual trading patterns, it cut him off and Shaw and London agreed to end their arrangement. But when US authorities later approached Shaw about his trading, he agreed to cooperate, restarted his tip-sharing relationship with London and recorded him passing on information in a branch of Starbucks.
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