Below is a statement by Mr. Scott
London (former partner at KPMG) acknowledging his role in the insider trading of information
he acquired as the auditor. This statement reflects the challenges companies have in
ensuring the internal control systems in place are working as intended. As the
KPMG chairman said:
"As part of KPMG’s comprehensive Ethics and Compliance
Program, we have a rigorous system in place to prevent insider
trading, including policies, processes, training, monitoring, and
enforcement. This individual violated our policies, betrayed the trust of
clients as well as colleagues, and acted with deliberate disregard for our
long-standing culture of professionalism and integrity that guides the
actions of all of our people."
The problem is determining if KPMG did
actually try to monitor and enforce its policies. In the past, they
have been censured for not properly monitoring the activities of its
partners. Here are three examples:
1. In April of
2005 KPMG paid $22 million to settle SEC litigation relating to audits of Xerox.
The SEC complaint alleges that KPMG and its
partners permitted Xerox to manipulate its accounting practices to close a $3
billion "gap" between actual operating results and results reported
to the investing public.
"KPMG caused and willfully aided and abetted
Xerox's violations of the anti-fraud, reporting, recordkeeping and internal
controls provisions of the federal securities laws. The Order also finds that
KPMG violated its obligations to disclose to Xerox illegal acts that came to
its attention during the Xerox audits. The Order censures KPMG and orders it to
cease and desist from committing or causing these violations. KPMG consented to
the entry of the Order without admitting or denying the SEC's findings."
2. In October
of 2004, the Securities and Exchange Commission sanctioned KPMG and two former
KPMG partners, and a current partner and senior manager for engaging in
improper professional conduct as auditors for Gemstar-TV Guide International,
Inc. KPMG and the auditors agreed to settle the action without admitting or
denying the SEC's findings. As part of the settlement, KPMG was censured and
agreed to pay $10 million to harmed Gemstar shareholders.
3. In January 2002,
the Securities and Exchange Commission censured KPMG for engaging in improper
professional conduct because it purported to serve as an independent accounting
firm for an audit client (Short-Term Investments Trust, a money market fund
within the AIM family of funds) at the same time that it had made substantial financial
investments in the client. The SEC found that KPMG violated the auditor
independence rules by engaging in such conduct. KPMG consented to the SEC's order
without admitting or denying the SEC's findings.
Scott
London's April 9, 2013 Statement
Let me first say that 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 emphasize this enough,
is that KPMG had nothing to do with what I did. The Firm bears no
responsibility in this matter. These actions were by my choice and
mine only. These leaks started a few years back in an effort to help out
someone whose business was struggling. From time to time over the last
couple of years, this third party would ask me how these clients were
doing. On a few occasions over the past few years, this individual would
ask if he should buy or sell a stock and I gave him my thoughts indicating
whether the stock was a good buy or not. Never once did I pass any
documents to him, but rather we spoke on the phone and the information I
provided was in the form of a suggestion. He traded on the information,
but to this day I am not aware of how much he profited from
the information. Regardless, what I have done was wrong and against
everything that had believed in. I spent nearly 30 years at KPMG and I
dedicated my entire life to that Firm. This is the main reason why this is
so difficult for me to go through.. Knowing that I have caused harm
and embarrassment to
those that I respected and admired in the Finn has caused me tremendous
grief.
I have embarrassed myself, my
family, my friends, KPMG and those that worked with and for me while I was
at KPMG. I want to express my deepest apologies for any harm that results
to KPMG and the terrific employees and partners that I worked with. No one
in the Firm knew what I did. Moreover, nothing of what I did impacted how
I conducted the audits of Skechers and Herbalife. With regard to
Herbalife, there was no information leaked during 2012, accordingly, none
of what I did had anything to do with Herbalife's continuing battles with
investors over the Company's business practices.
The
auditing profession’s challenges continue to affect the public and the
companies audited. In this case, Herbalife
has shelved its plans for a large stock buyback after KPMG resigned as its
auditor.
