The DOJ and SEC charged six accountants Monday with misappropriating and using confidential information about the PCAOB’s planned inspections of KPMG.
The six include three former officials at the Public Company Accounting Oversight Board or PCAOB and three former partners at KPMG LLP.
The defendants were were arrested Monday. The DOJ charged them in a criminal indictment with conspiring to defraud securities regulators and misuse confidential auditing information.
The indictment filed in Manhattan alleged that the KPMG partners recruited officials at the PCAOB who had stolen confidential information about the PCAOB’s plans to audit the firm.
The PCAOB is a nonprofit corporation established by Congress in 2002 through the Sarbanes-Oxley Act. It oversees the audits of public companies.
The SEC alleged in civll charges that the former PCAOB officials “made unauthorized disclosures of PCAOB plans for inspections of KPMG audits, enabling the former KPMG partners to analyze and revise audit workpapers in an effort to avoid negative findings by the PCAOB.”
Two of the former PCAOB officials had left the regulator to work at KPMG. The third allegedly leaked PCAOB data while applying for a job with KPMG.
The three former KPMG partners were all in the firm’s national office.
The SEC said the leaks started in 2015 and lasted until February 2017.
KPMG fired five partners last year because of the leaked information.
One defendant agreed Monday to settle with the SEC. Brian Sweet, formerly a supervisor at the PCAOB, was barred from appearing or practicing before the SEC as an accountant.
After leaving the PCAOB, Sweet allegedly kept access to confidential PCAOB materials through Cynthia Holder, a PCAOB inspector. After Holder joined Sweet at KPMG, a third PCAOB employee, Jeffrey Wada, allegedly leaked confidential information about planned PCAOB inspections of KPMG to Holder.
According to the SEC’s order (pdf), Wada allegedly leaked the information while applying for a job at KPMG.
SEC chairman Jay Clayton said in a statement Monday he was “concerned about potential adverse collateral effects” of the leaks.
“I have asked the SEC staff . . . to work with issuers to ensure that collateral effects, if any, to issuers and, in particular, their shareholders are minimized,” Clayton said.
Richard L. Cassin is the publisher and editor of the FCPA Blog.