KPMG in Deep with SEC's Lawyers

Tickers in this article: DECK HLF SKX

NEW YORK (TheStreet) -- The Securities and Exchange Commission has charged the former partner in charge of KPMG LLP's Pacific Southwest audit practice and a friend of his with insider trading on nonpublic information about KPMG clients.

In a parallel action on Thursday, the U.S. Attorney's Office for the Central District of California announced criminal charges against the KPMG partner, Scott London.

Details of the case became public Monday when KPMG announced it had fired a senior trader for passing along inside information.

The SEC alleged that London provided Bryan Shaw with confidential details about five KPMG audit clients, enabling Shaw to make more than $1.2 million in illicit profits trading. The tips were details about pending earnings or merger announcements. London has said that he provided the inside information to help Shaw overcome financial struggles caused by his faltering family-run jewelry business.

Shaw paid London at least $50,000 in cash but also gave London a Rolex watch as well as other jewelry, meals and tickets to entertainment events, according to the SEC.

"London was honored with the highest trust of public companies, and he crassly betrayed that trust for bags of cash and a Rolex," said George S. Canellos, acting director of the SEC's Division of Enforcement.

London recently informed the firm that he was under investigation by the SEC and criminal authorities for insider trading of KPMG clients and was immediately fired. According to the SEC, London began providing Shaw with nonpublic information in October 2010 and the misconduct continued for the next 18 months.

The SEC alleges that London tipped off Shaw with the confidential details about impending mergers involving RSC Holdings Inc. and Pacific Capital. Shaw made nearly $192,000 by purchasing RSC Holdings stock the day before its Dec. 15, 2011, announcement that it agreed to be acquired by United Rentals Inc. for $4.2 billion. He made more than $365,000 in illicit profits from his purchase of Pacific Capital securities prior to an announcement on March 9, 2012, of an acquisition of the company by UnionBanCal Corp.

The tips also included details of several KPMG audits, including Herbalife Ltd., Skechers USA and Deckers Outdoor Corp.