Herbalife auditor KPMG resigns over leak

KPMG has accused the partner in charge of its audit practice in Los Angeles of passing on confidential information about its clients, including Herbalife.

As well as firing the as yet unnamed person, the US arm of the world’s fourth-biggest accounting and consulting firm by fees said it was resigning as auditor to Herbalife after deciding that its independence had been compromised.

In a statement on Monday, KPMG said its 22,000 US partners and staff “unequivo- cally condemn this individual’s rogue actions”.

“This individual violated the firm’s rigorous policies and protections, betrayed the trust of clients as well as colleagues, and acted with deliberate disregard for KPMG’s longstanding culture of professionalism,” it said.

KPMG said it had acted after being informed last week that the partner had been feeding nonpublic client information to a third party, who allegedly used it in share trading involving several west coast firms.

The auditor’s reports it had supplied to the two companies — one of which it declined to identify — were no longer valid, KPMG said, adding that these clients had been informed of the need to withdraw its opinion on their financial statements.

However, it said it had no reason to believe that these accounts had been materially misstated. The unfolding controversy could damage KPMG’s reputation. A good name is of vital importance in auditing, where discretion and impartiality are seen as key professional attributes.

Following the collapse of Arthur Andersen, Enron’s auditor, some regulators have fretted about the potential for one of the remaining Big Four auditors — PwC, Deloitte, Ernst & Young and KPMG — to become embroiled in a similar scandal and haemorrhage clients.

Post-Andersen, KPMG came particularly close to disaster when it became embroiled in a tax evasion scandal in the US that led to it paying a $456m fine and related penalties and accepting a deferred prosecution deal in 2005.

There have been recent precedents for insider trading cases involving Big Four partners. Thomas Flanagan, a former partner in the US arm of Deloitte, was jailed last year for insider trading. In 2011 Annabel McClellan was fined $1m to settle claims that she passed confidential information from her husband — another former Deloitte partner in the US — about coming deals to relatives in London, who traded off that knowledge. She also received a prison sentence for obstructing the investigation. The US Securities and Exchange Commission dropped insider trading claims it had made against her husband, Arnold McClellan.

A source told Reuters the Los Angeles office of the Federal Bureau of Investigation was investigating the matter. Financial Times, Reuters