Former Senior KPMG auditor Scott London leaves the Los Angeles Federal Court on Thursday, April 11, 2013Damian Dovarganes/The Associated Press
Scott London appears to have ruined his life and reputation for about $50,000 (U.S.) in cash and a fancy watch.
That's one of the many gems from the criminal complaint filed on Thursday in federal court in Los Angeles against Mr. London, a former partner at accounting giant KPMG LLP.
The complaint accuses Mr. London of passing tips to a friend, Bryan Shaw, about five companies he was involved in auditing, including shoe retailer Skechers USA Inc. and Herbalife Ltd., a seller of dietary supplements.
Guess who plays the role of spoil sport? None other than Bill Ackman, the activist hedge-fund manager who has mounted a sustained attack on Herbalife.
In February, in a recorded conversation, the two conspirators discussed the wisdom of placing a bet on Herbalife's shares ahead of an imminent earnings release, the court documents said.
Mr. London said Herbalife would beat the market's expectations of its earnings and believed the company's shares would go up, but he was worried about Mr. Ackman's ability to drive the shares down, the complaint said.
With Mr. Ackman in the mix, Mr. London suggested they "take a pass on this one," the complaint said, and regroup for better profit-making opportunities in the future.
In a statement provided to The Wall Street Journal, Mr. London said he regretted "leaking non-public data to a third party regarding the clients I served for KPMG… what I have done was wrong and against everything that [I] had believed in."
Unlike some other recent insider trading cases, this one is a bit of a head scratcher. For Mr. Shaw, the motive was clear: the complaint said he netted a cool $1-million (U.S.) in illegal profits from the trades.
But what did Mr. London get over the two year period in question? Allegedly some bundles of cash, amounting to roughly $50,000; a handsome Rolex; and tickets to expensive concerts featuring the likes of Bruce Springsteen.
While those are attractive perks, it's not evident why a senior partner at KPMG – earning an estimated half-a-million dollars a year or more – would risk his freedom and reputation to attain them.
The complaint suggests that Mr. London appeared to thrive on the intrigue of the operation. He repeatedly discussed the details of how to make money off secret information, and on several occasions, reassured his nervous partner that they wouldn't get caught, the document said.
When Mr. Shaw's brokerage firm suspended his account, he panicked and called Mr. London, worried they had been discovered, according to court documents. There was no reason for concern, Mr. London allegedly responded. He explained that "insider trading was like counting cards at a casino in Las Vegas – if you were caught, they simply ask you to leave because they cannot prove it," the complaint said.
Only it's not like counting cards. They can prove it. And if they do, you don't end up out on a sidewalk on the Strip.
(Joanna Slater is the Globe's New York Bureau Chief.)
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