25° Good Morning
25° Good Morning

KPMG fires partner linked to insider trading

Accounting firm KPMG has resigned as the auditor

Accounting firm KPMG has resigned as the auditor for two companies and fired a partner amid allegations of insider trading. This is the KPMG office in Los Angeles. (April 9, 2013) Credit: Bloomberg News

Accounting firm KPMG has resigned as the auditor for Herbalife, a dietary supplements maker, and the shoe retailer Skechers, after a rogue partner allegedly leaked information about the companies to someone who then used the information to trade stocks.

KPMG said it has fired the partner and has no reason to believe there were any problems with the financial reports of Herbalife or Skechers.

Still, the development is a headache for both companies. KPMG withdrew its recent audit reports of both companies, because it felt its own independence had been compromised.

David Weinberg, chief operating officer and chief financial officer of Skechers, was spending Tuesday looking for a new auditor. He learned the news Monday afternoon, when two KPMG employees came to visit and break the news in person.

"I don't think it's catastrophic because we have the greatest confidence in the financial statements that were released and that he [the KPMG partner] acted alone," Weinberg said.

Still, he called the news "an unfortunate development" as the company prepares to report first-quarter earnings, and said he was shocked when he learned it. He didn't think there was anything he could do differently as he looks for a new auditor: "I don't know that it's up to me to give them a polygraph test," he said.

KPMG didn't reveal the partner's identity. It announced the dismissal in a statement late Monday in which it also said it was resigning as auditor for two companies that it didn't identify.

Herbalife and Skechers made their own announcements on Tuesday confirming that they were the companies involved. Skechers said KPMG told it that the ex-partner provided the inside information in exchange for money and is under federal investigation.

An SEC spokesman in Washington declined to comment.

The development comes at an awkward time for Herbalife. Activist investor Bill Ackman has publicly attacked Herbalife, saying it is distorting the financial information it gives to investors. His rival Carl Icahn has vehemently disagreed and has increased his stake in the company. In February, the wrangling boiled over in public as Ackman and Icahn got in a shouting match on live television.

More news