tuesday, 9 april of 2013

US: Prosecutors Said to Be Investigating Tips at KPMG Involving Herbalife and Skechers

Investigation

US - Prosecutors Said to Be Investigating Tips at KPMG Involving Herbalife and Skechers

Federal prosecutors and securities regulators in Los Angeles are investigating a former senior partner at KPMG on suspicion of leaking secret information to a stock trader, according to people with direct knowledge of the inquiry.

The case involves alleged tips about confidential data related to Herbalife, the nutritional-supplement seller, and Skechers USA, the footwear maker, according to these people. On Tuesday morning, both Herbalife and Skechers announced that KPMG had resigned as their auditor.

The news of possible insider trading emerged in an unusual fashion late Monday, when KPMG announced on its Web site that it had fired a senior partner in its Los Angeles office because of the suspected passing of confidential information to an unnamed individual “who then used that information in stock trades involving several West Coast companies.”

The firm said it had to resign as auditor from several companies “after concluding today that the firm’s independence has been impacted” because of the partner’s behavior. It added that the partner acted “with deliberate disregard for KPMG’s long-standing culture of professionalism and integrity.”

A government action against the former KPMG partner would add to the recent push by prosecutors and securities regulators to root out insider trading, a campaign that has yielded about 180 civil actions and more than 75 criminal prosecutions.

The news added to a swirl of publicity surrounding Herbalife, a supplement seller that has been in the middle of a well-publicized battle between several hedge fund managers. William A. Ackman of Pershing Square Capital Management has said that he believes Herbalife is a “pyramid scheme” and a has a $1 billion bet in the place that the price of the stock will drop. On the other side of the trade, is the activist investor Carl C. Icahn, who owns a large position in Herbalife shares.

Herbalife said Tuesday that KPMG informed the company that it was resigning as auditor because its independence had been impaired.

In its announcement, Los Angeles-based Herbalife said that it believed its financial accounts for its last three fiscal years remained accurate. But KPMG, citing a belief that its independence had been impaired, withdrew its audits for those years. KPMG also said that its resignation was not in any way related to Herbalife’s “financial statements, its accounting practices, the integrity of Herbalife’s management or for any other reason.”

It’s unclear when Herbalife will hire a new auditor, though any such firm would likely take a fresh look at the company’s financials.

Skecher’s chief financial officer, David Weinberg, said in a statement that he believed that none of its audited filings misstated its results or financial condition. Still, KPMG was withdrawing its auditors’ reports for the company’s last two fiscal years.

Skechers added that, according to KPMG, the former partner in question is cooperating with authorities.

The news is an embarrassment to KPMG, which came under scrutiny last decade for it role in marketing tax shelters. Two former KPMG partners are serving prison terms for selling fraudulent tax shelter schemes to clients.

Tim Connolly, a KPMG spokesman, did not immediately respond to a request for comment.

In the statement Monday evening, the firm said, “KPMG’s 22,000 partners and employees unequivocally condemn this individual’s rogue actions.” The accounting firm did not name the companies whose confidential information was disclosed as part of the scheme.

Skechers, too, has been in the cross-hairs of regulators. Last year, it agreed to pay $50 million to resolve federal and state accusations that it misled the public with false advertising related to its “toning shoes.” The company claimed in its ads — including one featuring Kim Kardashian — that the sneakers would help consumers tone muscles and lose weight.

(Published by The New York Times – April 9, 2013)

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