By Emily Flitter
NEW YORK, April 11 As investors Carl Icahn and
William Ackman bickered loudly on TV earlier this year about
their opposing bets on Herbalife, two other men were discussing
the company in a different context: getting non-public
information to trade ahead of the stock's next move.
Referring to Icahn's announcement that he had purchased a
large stake in the nutritional products company, one of the men
said: "I wish you would've known that he was going to release
that and we could've made some money."
The other replied: "Yeah, that would've been nice."
The conversation was part of a call California jeweler Bryan
Shaw recorded and later shared with the Federal Bureau of
Investigation to help in their investigation of his longtime
golf partner, Scott London. At the time, London was a senior
KPMG auditor who had been leaking inside information about his
corporate clients to Shaw.
U.S. authorities filed criminal and civil charges on
Thursday against London, who is accused of passing Shaw
non-public information about five of KPMG's clients.
On Thursday afternoon, a federal judge in Los Angeles freed
London on a $150,000 bond, ordered him to turn over his
passport, and directed the former KPMG auditor not to make
contact with Shaw unless in the company of attorneys.
London's attorney, Harland Braun, said his client intended
to plead guilty when he is formally arraigned on May 17.
"Had my client been asked to give information for cash, he
would have said no," Braun told reporters in the courthouse
hallway after the proceeding. "This is that gray area, when you
talk at the country club. But once you take money, you're dead."
KPMG CEO John Veihmeyer said on Thursday his firm will take
legal action against London in the near future. However, he said
there was no reason to believe the financial statements of the
companies involved are materially misstated.
"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," Veihmeyer said.
According to prosecutors, Shaw made about $1 million trading
on the tips and gave London roughly 10 percent of his profits on
each of the trades in the form of cash, jewelry, concert tickets
and free meals.
One gift for London was a Rolex Daytona Cosmograph watch
valued in 2011 at $12,000. Another, $10,000 wrapped into a
bundle of $100 bills. Shaw told the FBI he believed he spent
between $25,000 and $45,000 in concert tickets for the two of
them, including a Bruce Springsteen event.
Braun disputed the amounts, saying his client only received
about $35,000. London turned over $7,500 in cash and the Rolex
at the courthouse.
"I can't understand why he took the money," the attorney
said. "He didn't need it."
HOW TO PLAY IT
Prosecutors charged London, a Los Angeles-based auditor,
with one count of conspiracy to commit securities fraud for
giving Shaw information about public companies, including,
Herbalife Ltd, Skechers USA Inc and Deckers
Deckers did not respond to multiple calls and emails seeking
comment. Herbalife and footwear maker Skechers disclosed earlier
this week that KPMG had quit as their auditors in response to
According to the complaint filed in federal court in Los
Angeles, London also advised Shaw on the best ways to trade on
For instance, he told Shaw about a merger between KPMG
client RSC Holdings and United Rentals Inc and reassured
his friend about trading on the takeover because "regulators
were not looking for 'small fish,'" according to the complaint.
United Rentals spokesman Fred Bratman told Reuters by phone:
"We are not a party to this case, but we will obviously
cooperate and provide any assistance that we can to the
He did not confirm or deny that KPMG was the auditor of RSC
London also told Shaw about a takeover of Pacific Capital
Bancorp by Union Bank, according to the charges. Tom Taggart,
the spokesman for Pacific Capital's current parent, Union Bank,
declined to comment.
The case has already cost London his job. It has also
prompted some public confessions rarely seen in insider trading
cases. Soon after news of the case broke earlier this week,
London admitted to the Wall Street Journal that he passed on
information to his friend, but did not know he would trade on
Braun, London's lawyer, told Reuters on Wednesday that
London's statements to the press were incorrect and ill-advised.
Legal experts said it was rare for insider trading suspects
such as London to make public statements and it could cause more
problems for him.
C. Evan Stewart, partner at Zuckerman Spaeder in New York,
who routinely represents clients charged with insider trading
and who is not involved in the case, said it was hard to see a
reason for London's statements.
"I've never seen anything like this in 36 years of
practice," he said. "That's certainly not a strategy I would be
employing under these circumstances."
London's attorney, Braun, told reporters on Thursday that
his client came forward to talk with the Wall Street Journal
about his involvement in the scheme because he was trying to
protect KPMG and its employees.
Shaw, through his lawyer, also spoke to the press earlier.
In a statement that lawyer Nathan Hochman emailed to Reuters on
Thursday, Shaw admitted he received non-public information from
London during a two-year period ending in 2012.
"I expect that my actions will result in significant civil
and criminal consequences, but I realize that this is the
painful price I will pay for my transgressions," he added.
Of the two sets of comments, it is London's that have
potential to do more damage, according to Stewart.
"Mr. London was a very senior KPMG guy who had been
counseled by very experienced lawyers on this subject, I'm sure
on numerous occasions, and then to be out there chatting with
the Wall Street Journal about this, it's a very significant
setback for his now former firm."