Ex-KPMG Auditor’s Friend Pleads Guilty in Insider Case

The owner of a Los Angeles jewelry store pleaded guilty to receiving insider information about KPMG LLP clients provided by a friend who was a senior partner at the audit firm.

Bryan Shaw, 52, admitted to one count of conspiracy at a hearing today before U.S. District Judge George Wu in Los Angeles. Shaw agreed to pay $1.3 million in profits he made from trading on non-public information he received about Herbalife Ltd. (HLF) and Skechers U.S.A. Inc. (SKX), among other KPMG clients, from 2010 through 2012.

The judge ordered Shaw, who remains free on bond, to return for sentencing on Sept. 16. The charge carries as long as five years in prison. According to Shaw’s plea agreement, prosecutors will ask for a reduced sentence. Shaw started cooperating with investigators in February and recorded conversations with Scott London, 50, the former KPMG auditor who was charged last month.

Prosecutors have accused London of providing Shaw with confidential information about KPMG clients whose books he audited sometimes days before a press release. Shaw gave London bags with stacks of $100 bills near his jewelry story in Encino, an affluent district of Los Angeles, prosecutors said.

Shaw’s attorney, Nathan Hochman, said today that his client had pleaded guilty “because he was guilty.” He “made incredibly stupid decisions” in making the insider trades with London, with whom he became friends after they met on a golf course, Hochman said. Shaw didn’t speak to reporters after the hearing.

Court Appearance

London is scheduled to appear in federal court in Los Angeles on May 30, when he will either be indicted or enter a plea agreement, Assistant U.S. Attorney James Bowman said.

“This case is unusual in that both men admitted guilt before they were charged,” Bowman said after today’s hearing. “It speaks to the strength of the evidence,” he said, citing a photo of the two men in a parking lot with what he said was “money passing hands.”

Hochman said when investigators confronted Shaw, he faced a choice of either covering up his actions or cooperating.

“He chose to do the right thing,” the lawyer said, adding that he hopes the sentence will reflect that cooperation.

The case is U.S. v. Shaw, 13-00314, U.S. District Court, Central District of California (Los Angeles).

To contact the reporters on this story: Valerie Reitman at valeriereitman@yahoo.com; Edvard Pettersson in the Los Angeles federal courthouse at epettersson@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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