Ex-KPMG partner to plead guilty, lawyer says

The auditing chief at the Los Angeles office The auditing chief at the Los Angeles office of accounting firm was charged on Thursday with passing insider trading tips to a friend from late 2010 to last month in exchange for cash and gifts. (April 9, 2013) Photo Credit: Bloomberg

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Ex-KPMG LLP partner Scott London, who led the firm's audit practice in Los Angeles and was charged yesterday with passing inside tips to a friend, will plead guilty, his lawyer said.

London was charged by federal prosecutors in Los Angeles with passing inside information about Herbalife Ltd. and Skechers USA Inc. in exchange for cash, jewelry, gifts and concert tickets. Harland Braun, London's lawyer, said after a court appearance he expects his client to plead guilty at a hearing set for May 17.

London's tips included discussions of rumors that Herbalife would go private, according to a criminal complaint filed yesterday in federal court in Los Angeles. London told his friend, Bryan Shaw, about the rumor in a recorded phone call, according to the complaint.

"That is going to be where you make a ton of money," London told Shaw, according to the complaint. "What you do is you start just buying in small blocks, right, so it doesn't draw attention, you know, then it doesn't look unusual at all."

London, 50, of Agoura Hills, Calif., is charged with one count of conspiracy to commit securities fraud through insider trading, federal prosecutors said yesterday in a statement. From late 2010 to March 2013 he provided confidential information about KPMG clients to Shaw that Shaw used to make trades that generated more than $1 million dollars in illegal proceeds, prosecutors said.

U.S. Magistrate Judge Charles Eick in Los Angeles ordered London to post bail of $150,000. Eick also required London to surrender his passport and barred him from having any contact with Shaw.

London faces a prison term of as long as five years, prosecutors said.

London's honesty after the scheme was discovered avoided a possible investigation of hundreds of audits done at KPMG and even possibly a stock market crash, Braun said.

Nathan Hochman, Shaw's lawyer, didn't immediately return a call seeking comment. Shaw hasn't been charged by prosecutors.

He has cooperated with the government and recorded in-person meetings with London and telephone calls, according to the affidavit.The U.S. Securities and Exchange Commission said yesterday in a statement it sued London and Shaw in federal court in Los Angeles.

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