The U.S. Department of Justice and the Securities and Exchange Commission and have charged Scott London, the former partner in charge of KPMG's Los Angeles audit practice, with insider trading, alleging he traded information on five KPMG public company audit clients with a friend in exchange for cash, jewelry and entertainment. London is also under investigation by the Federal Bureau of Investigation.

The SEC says London tipped his friend and golf partner, Bryan Shaw, a struggling jeweler, with non-public details regarding five KPMG audit clients, enabling Shaw to raise more than $1.2 million by trading in shares before earnings or merger announcements. London told authorities he was trying to help Shaw as his family-run jewelry business began struggling through the economic downturn. The U.S. Attorney's Office says the insider trading began in late 2010 and continued through March 2013.

KPMG fired London and resigned from its audit work with Skechers USA and Herbalife after learning London was under investigation. The Big 4 firm also declared its independence tainted and withdrew a total of five years worth of audit work for the two companies combined. Authorities says London also traded secret information regarding Deckers Outdoor Corp., RSC Holdings, and Pacific Capital, although KPMG has not identified the other three public company audit clients whose confidential information London is said to have traded. The SEC says London was the lead partner on the Skechers and Herballife engagements and was an account executive for Deckers.

In a statement included with the SEC release, London says he acted alone and his conduct had no bearing on how he performed his audit duties. “The firm bears no responsibility in this matter,” London says. “These actions were by my choice and mine only.” He says the scheme began as investment suggestions to help a friend whose business was struggling.

In a separate statement, KPMG Chairman and CEO John Veihmeyer said he was “appalled” to see the details of London's breach of duties to KPMG's clients, the firm, and the capital markets. “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,” he said. “KPMG will be bringing legal actions against London in the near future.” He added the only reason KPMG resigned the Herbalife and Skechers audits is because the firm's independence was impaired by London's actions. “We have no reason to believe that their financial statements are materially misstated,” he said.

Authorities say London met periodically with Shaw outside of his jewelry business to receive bags of cash or jewelry in exchange for the information. London reportedly received cash and gifts valued at approximately $50,000 through the scheme. They say London sometimes called Shaw days before press releases were issued for KPMG clients and read confidential information from draft releases or disclosed confidential information regarding impending mergers. At times, the U.S. Attorney's office says, London also discussed with Shaw how he should structure his stock purchases in certain companies to protect their scheme from discovery.

Under the criminal charges, London faces a maximum penalty of five years in prison and a fine of $250,000 or twice the gross gain or loss from the offense. The SEC's civil charges also seek unspecified monetary penalties.