KPMG Accountant From Agoura Hills Will Plead Guilty to Securities Fraud

A former KPMG senior partner from Agoura Hills will plead guilty to securities fraud in Los Angeles for accepting bribes in exchange for passing confidential information about the accounting firm's clients, including Southland companies Herbalife and Skechers USA to his Encino golfing buddy, according to his lawyer.

Scott London, 50, is charged with a single federal criminal count of conspiracy to commit securities fraud through insider trading. The charge carries a possible prison term of up to five years, prosecutors said.

Harland Braun, London's attorney, told reporters after an initial court appearance that his client would plead guilty to the charge. He said he hoped London could avoid prison as a result of the plea.

U.S. Magistrate Judge Charles F. Eick set arraignment for May 17. The judge allowed London to remain free on a $150,000 bond, and gave him a week to complete the paperwork.

Asked by Eick if he understood the charge against him, London responded, "I do, your honor."

As part of the conditions of his pretrial release, London was ordered to have no contact with any victims or potential witnesses in the case. Eick also ordered London to surrender his passport and stay within the jurisdiction of the court.

• Agoura Hills Accountant's Pal Helped FBI Set Up Insider Trading Sting

London was arrested by federal authorities on Friday and was fired the same day by KPMG. The federal investigation led to a temporary halt in trading of Herbalife and Skechers USA shares on Tuesday.

Prosecutors contend that in exchange for illegal trading tips, a close friend of London's identified as Bryan Shaw paid London at least $50,000 in cash that was usually delivered in bags outside of Shaw's Encino jewelry store.

Shaw also allegedly gave London a $12,000 Rolex watch as well as other jewelry, meals, and concert tickets.

"London was honored with the highest trust of public companies, and he crassly betrayed that trust for bags of cash and a Rolex,' said George S. Canellos, acting director of the Securities and Exchange Commission's enforcement division.

Michele Wein Layne, director of the SEC's Los Angeles regional office, added, "As a leader at a major accounting firm, London's conduct was an egregious violation of his ethical and professional duties."

According to the U.S. Attorney's Office, London passed confidential information about KPMG clients over the course of several years to Shaw, who in turn made securities trades that earned him more than $1 million.

In some cases, London would allegedly call Shaw two or three days before news releases were issued for KPMG clients, including information about impending mergers. London also talked to Shaw about how to structure purchases in certain companies' stock to ensure the insider-trading scheme went undiscovered, prosecutors said.

"Mr. 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," U.S. Attorney André Birotte Jr. said.

Prosecutors said when the investigation led to Shaw, he agreed to cooperate with investigators and took part in recorded conversations with London.

In one of those conversations, London allegedly gave Shaw information about upcoming earnings announcements for Herbalife and another company, Deckers Outdoor Corp.

Shaw also met with London on two occasions at the direction of the FBI to receive payments -- once in Encino where London received a bag with $5,000 in cash, and once in Woodland Hills, where he received another $5,000, prosecutors said.

Shaw was not charged by the U.S. Attorney's Office, but he and London were both named in a civil complaint filed Thursday by the SEC.

Herbalife and Skechers officials both said Tuesday that KPMG had resigned as the auditor for the companies.

Late Thursday, KPMG LLP Chairman and CEO John Veihmeyer issued a statement saying he had reviewed the criminal complaint and was "appalled to learn of the additional details about Scott London's extraordinary breach of fiduciary duties to our clients, KPMG and the capital markets."

"We unequivocally condemn his actions, and deeply regret the impact that his violations of trust and the law have had on our clients and our people," he said, pledging that KPMG "will be bringing legal actions against London in the near future."

"As a result of his unlawful activities, it was clear that our independence had been impaired with respect to the two companies for which he served as lead partner, Herbalife and Skechers," Veihmeyer said. "Due to this impairment, we were professionally obligated to take the regrettable action to resign as the independent auditor for these two companies and withdraw our previously issued audit reports.  The sole reason for these steps was the actions of our former partner and we have no reason to believe that their financial statements are materially misstated."

-- Mark Lacter of LA Biz Observed contributed to this report.