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May 6, 2013 10:39 pm
California jeweller Bryan Shaw has agreed to plead guilty to trading shares of five companies after receiving secret information from his golf buddy, a former senior audit partner at KPMG.
As part of a plea agreement with US prosecutors, Mr Shaw agreed to pay $1.27m, which is roughly equal to the profits he made on the trades. Under the deal, he and prosecutors agreed to a prison sentence ranging from 37 to 46 months, but given his co-operation he is likely to face a shorter prison term.
The case generated international headlines in April when KPMG resigned from auditing Herbalife, the nutritional supplement seller, and shoemaker Skechers, saying recent audits could not be relied upon because “the firm’s independence had been impacted”.
It quickly emerged that Scott London, KPMG’s former head of audit for the Pacific southwest, was implicated in an insider-trading scheme. In an unusual move, he confessed publicly to insider trading days before he was charged with conspiracy to commit securities fraud. Mr London faces a maximum of five years in prison but will probably be given a shorter sentence.
In exchange for tips, Mr Shaw paid Mr London at least $60,000 in cash, prosecutors said, and gave him a $12,000 Rolex watch and concert tickets. Mr Shaw, through his attorney, has previously said his actions were “incredibly stupid”.
Mr Shaw has been co-operating with the Federal Bureau of Investigation, Securities and Exchange Commission and prosecutors at the US attorney’s office in Los Angeles since earlier this year when authorities approached him about unusual trading in his brokerage account.
At the direction of the FBI, Mr Shaw agreed to wear a recording device to capture conversations with Mr London. The FBI also recorded Mr Shaw handing Mr London a black paper bag containing $5,000 in cash.
Mr Shaw and Mr London met seven years ago as members of the North Ranch Country Club. They soon became friends and golf partners.
In 2010 Mr London began sharing with Mr Shaw confidential secrets about companies audited by KPMG. Mr London, a well-respected businessman serving philanthropic causes, said he did it to help out his friend whose jewellery business was struggling as a result of the financial crisis.
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