Securities Regulation Daily Stolen inspection lists lead to guilty plea of former PCAOB official
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Wednesday, October 17, 2018

Stolen inspection lists lead to guilty plea of former PCAOB official

By R. Jason Howard, J.D.

The U.S. Attorney’s Office for the Southern District of New York has announced that a former PCAOB inspections leader and KPMG executive director has pleaded guilty to participating in a scheme designed to improve KPMG’s performance in PCAOB inspections.

Scheme. The government alleged that between 2015 and 2107, the former PCAOB inspections leader and several coconspirators accessed and stoleconfidential information from the PCAOB in an effort to improve KPMG’s performance in PCAOB inspections. Once the information was passed on to KPMG, it was "re-reviewed" under false pretenses to allow KPMG an opportunity to "double-check its audit work, strengthen its work papers, and, in some cases, identify deficiencies or perform new audit work that had not been done during the live audit."

In 2017, the former inspections leader obtained a full list of confidential inspection selections for KPMG audits and shared it with her coconspirators who then agreed to "inform engagement partners on the list so that extra attention could be paid to these audits in light of the forthcoming PCAOB inspections."

When a KPMG partner received early notice that his/her engagement was on the confidential 2017 inspection list, he reported the matter and KPMG’s Office of General Counsel launched an internal investigation. The former inspections leader and one coconspirator then took steps to destroy or fabricate any relevant information.

Manhattan U.S. Attorney Geoffrey S. Berman said: "In the wake of the accounting fraud scandals of the early 2000s, Congress passed important laws to ensure the quality and accuracy of auditing work performed on publicly traded companies so that investors could have confidence in the reported financial results of those companies. The SEC was vested with the responsibility and authority of executing these laws and the PCAOB was created to play a key role: To audit the auditors." The former inspections leader "undermined the work of the SEC and the PCAOB by stealing confidential inspection information from her former employer, the PCAOB, and helping insiders at her new employer, KPMG, to cheat the regulatory system put in place to protect the investing public. This was a revolving door tainted by fraud and today we hold the defendant accountable for her conduct," he concluded.

Penalty. The former inspections leader pleaded guilty to one count of conspiracy to defraud the United States, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; and two counts of wire fraud, which each carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense.

Sentencing is scheduled for April 5, 2019.

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