Wall Street is shocked at this inside trader’s stupidity

What the heck was KPMG’s Scott London thinking?
What the heck was KPMG’s Scott London thinking?
Image: AP Photo/Richard Drew
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The federal government has charged Scott London, a former partner at accounting powerhouse KPMG, of insider trading, in what might be one of the most stupidly brazen corporate crimes anyone has seen in quite some time. London, who oversaw the audits of several major corporations—including the closely watched Herbalife—provided non-public information to a golfing buddy, who turned around and made about $1 million in stock trades based on what he knew. As soon as the FBI came calling, the buddy—a jeweler named Bryan Shaw—sang like a canary, KPMG gave London the boot, and everyone on Wall Street was asking one question: What the heck was this guy thinking?

Even before formal charges were drawn up today, London was forced to admit that the Justice Department basically has him dead to rights. How could he not? His partner in the scheme has given up everything, and there’s simply no way for a person in London’s position to argue that he didn’t know that what he was doing was very wrong. To commit the crime he’s accused of, London had to violate the most basic principles of a profession he’s spent more than half his life in.

London is an accountant and professional auditor for one his industry’s big four firms. His entire job revolved around handling “material non-public information”—the kind of the info that people go to jail for revealing. There’s simply no way he could pretend that he didn’t know what he was doing was illegal. He also should have known that if suspicion was around, it would almost certainly lead back to him.

But isn’t just the foolishness of the crime that astounds, but the brazenness with which it was carried out. He spoke openly on the phone with Shaw on the best way to handle the trades and coached him on ways to try and conceal suspicion from authorities. (It didn’t work, obviously.) They did handoffs of large sums of cash in the parking lot of a Starbucks, where the FBI caught them on camera.

One of the companies that London is accused of sharing information about is Herbalife, which has been under tremendous scrutiny of late, thanks to accusations of fraud and a very public battle between two billionaire hedge fund managers over their (legitimate) trades of company’s stock. It’s hard to think of another public corporation right now whose suspicious trading activity could be under more public regulatory pressure. Wall Street came to a standstill on Tuesday when Herbalife’s shares were halted, then shook its collective head in disbelief when it was learned that the reason why was an auditor selling their secrets.

Although London is not accused of fudging any numbers for Herbalife, all the company’s audits for the last several years had to be withdrawn, and KMPG will not longer have Herbalife (or Skechers, the other company) as a client. London can try to minimize the damage by saying he only did it a few times or the information and dollar amounts were minor, but talking about the companies he was working on with friends would certainly violate his ethical and legal requirements. That would be true even if he didn’t profit from sharing the info, which he almost certainly did.

And what did he get for his troubles? About $25,000 in cash, a Rolex, Bruce Springsteen tickets, and a few dinners. That was the cost for throwing away a 29-year-career, his reputation, his accounting license, and his future down the drain. And that’s before a judge decides what his punishment should be.

London’s lawyer appeared on CNBC Wednesday, and admitted that his client’s behavior “makes no sense.” He added, “It made no sense from a dollar-and-cents point of view; it made no sense in terms of his ethics. […] He just can’t understand why he did it.” Neither, it seems, can anyone else.

This originally appeared on The Atlantic Wire. Also on our sister site:

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