The US Justice Department on Thursday charged a former KPMG senior partner with insider trading with a friend who allegedly made more than $1 million in illegal proceeds.
Scott London allegedly gave confidential information on five companies to his friend, Bryan Shaw, according to the US Attorney's Office for the Central District of California and the Federal Bureau of Investigation.
London, who oversaw KPMG's audit practice for the Pacific Southwest, allegedly accepted bags of cash and a Rolex watch in exchange for the inside information, the authorities said in a statement.
London, 50, of Agoura Hills, California, has admitted he gave inside information to Shaw.
KPMG said Monday it had fired London after learning of his dealings with Shaw and resigned as auditor for two companies, Herbalife and Skechers.
"The public has every right to fully expect a level playing field in our financial markets," said US Attorney Andre Birotte.
"As alleged in the complaint, 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."
From late 2010 until March 2013, London allegedly secretly passed to Shaw nonpublic information ahead of company earnings reports on Herbalife, Skechers and Deckers Outdoor Corporation.
London would typically read Shaw information from company press releases two or three days before they were released.
In at least one case, London suggested how Shaw should structure his purchases to avoid drawing attention from regulators.
London also tipped off Shaw on impending mergers. In one case, a heads-up involving a takeover of RSC Holdings netted Shaw more than $190,000 after the merger was announced.
In another case, trades on another takeover target, Pacific Capital Bancorp, resulted in a gain of at least $365,000, according to the US Attorney's Office.
Shaw allegedly secretly compensated London with at least $50,000 in cash, as well as a Rolex watch and other jewelry, meals and tickets.
The US Attorney's complaint against London alleged a single count of conspiracy to commit securities fraud through insider trading.
London faces up to five years in prison and a $250,000 fine if convicted.
The Securities and Exchange Commission also announced it had filed a parallel civil insider-trading charge against London and Shaw.
The cash was "usually delivered in bags" outside Shaw's California jewelry store, the SEC said.
Shaw cooperated with the criminal investigation of the insider trading.