* Senior partner resigns from KPMG over information leaks
* KPMG confirms identity of former partner as Scott London
* Herbalife shares close down, Skechers close higher
By Martinne Geller and Emily Flitter
April 9 In a blow to one of the world's largest
accounting firms, KPMG said it resigned as auditor of
two U.S. corporations amid an FBI investigation into insider
trading allegations involving leaked information and a former
The two California-based companies - nutritional products
group Herbalife Ltd and footwear maker Skechers USA Inc
- said separately on Tuesday that KPMG had quit as their
auditor in connection with the leaks.
The FBI's Los Angeles office is investigating the matter,
according to a source familiar with the situation.
Skechers Chief Financial Officer David Weinberg told Reuters
in an interview that Scott London had been the lead auditor for
Skechers and had resigned after the leaks. Weinberg said that
London had admitted to sharing inside information.
A KPMG spokesman confirmed that London was the partner who
had resigned from the firm.
London was not immediately available for comment. The
50-year-old California native worked at KPMG for 29 years. A
baseball lover, London became chairman of the L.A. Sports
Council in 2011. He is also listed as a 2012 director on the
board of the Los Angeles Chamber of Commerce.
Shares of Herbalife closed down 3.8 percent at $36.95, while
Skechers shares were up 1.9 percent at $21.91 on Tuesday on
moderately bullish New York Stock Exchange trading.
ANALYST DOWNGRADES HERBALIFE
"This is and will be disruptive to the stock, but hopefully
not the company," said Timothy Ramey, an analyst at investment
services firm D.A. Davidson & Co. in a report on Herbalife.
Ramey downgraded Herbalife shares to "neutral" from "buy."
Herbalife said in a statement that KPMG's resignation had
nothing to do with the company's accounting practices or the
integrity of its management - issues called into question by the
high-stakes drama between hedge fund titans Bill Ackman and Carl
Icahn over the company.
KPMG said in a statement late on Monday that it had resigned
as the outside auditor for two clients due to the actions of a
senior partner, who was in charge of the audit practice in its
Los Angeles business unit.
Monday's announcement did not identify the partner or the
companies involved. It said the unidentified partner provided
inside information about its clients to someone who had used
that information in stock trading.
"The partner was immediately separated from the firm," KPMG
said in its statement. "This individual violated the firm's
rigorous policies and protections, betrayed the trust of clients
as well as colleagues, and acted with deliberate disregard for
KPMG's long-standing culture of professionalism and integrity."
CALLS FOR MORE TRANSPARENCY
When the KPMG resignations became known late on Monday, the
identity of the senior partner involved was initially unknown.
London's name did not emerge until late on Tuesday.
The Public Company Accounting Oversight Board (PCAOB), which
polices audit firms, proposed in 2011 that the firms be required
to disclose the names of individual engagement partners in audit
reports, as they must in some other countries.
That proposal has not been made a U.S. rule. Some audit
critics said it should be to make auditing more transparent,
though audit firms have resisted this idea for a variety of
A PCAOB spokeswoman declined to comment.
KPMG is the smallest of the Big Four global accounting and
audit firms. It reported 2012 revenue of $23 billion, up 1.4
percent from the year before.
The other three firms are PricewaterhouseCoopers,
Deloitte and Ernst & Young. All are
U.S.-based and operate affiliate networks around the world.
Ackman and Icahn were not immediately available for comment.
Any controversy over KPMG's dealings could hurt the firm's
reputation. In 2005, KPMG narrowly avoided a criminal indictment
by agreeing to pay $456 million in a deferred prosecution
settlement with U.S. authorities over its sale of tax shelters.
Three years earlier, smaller rival Arthur Andersen collapsed
over its auditing work for energy company Enron Corp.
In addition, KPMG partners were the only ones so far to have
been sued by the U.S. Securities and Exchange Commission in
connection with the global financial crisis.