KPMG is to pay the Securities and Exchange Commission (SEC) nearly $50 million, one of the highest ever fines imposed on an auditor by America’s audit watchdog.
The fine, though not yet finalized, would settle civil claims related to the conduct of KPMG’s former partners, the Wall Street Journal reported.
In January 2018, SEC and prosecutors pursued civil and criminal charges against five former KPMG officers and a former regulator for sharing confidential information about which of the firm’s audits would be examined by its primary regulator, the Public Company Accounting Oversight Board. The regulator discovered a leak in February 2017, and KPMG reportedly fired the partners a couple of months later.
In March, a federal jury convicted former KPMG national managing partner for quality audit David Middendorf, the most-senior former auditor involved in the matter. It also convicted former board employee Jeffrey Wada, who gave KPMG officials “the grocery list,” a confidential list of audits to be inspected. Both criminal convictions included conspiracy and wire fraud.
Now, people familiar with the matter have told the publication that SEC commissioners are expected to vote this month to approve the settlement. This would include the $50 million fine and a requirement that KPMG retain an independent compliance consultant for at least a year.
A spokesman for the SEC reportedly declined to comment.
KPMG also came under fire over another alleged failing, which prosecutors compared to a student stealing an exam before taking it. The Wall Street Journal detailed that KPMG obtained confidential documents from its regulator as early as 2015 and continued to acquire — aided by a tipster inside the board — inspections data through early 2017.
After the accounting board began investigating a leak of its plans to inspect KPMG, the firm fired five partners and one other employee. Among the partners were Middendorf, Scott Marcello, Thomas Whittle, David Britt, and Brian Sweet. Cynthia Holder, an executive director who worked for Sweet, was also terminated.
Whittle and Holder have pleaded guilty and, like Middendorf and Wada, will be sentenced later. Britt is reportedly scheduled for trial in October.
Meanwhile, KPMG vice chairman for audit Marcello was never charged with wrongdoing. Sweet, a former regulator who was accused of taking confidential information from the accounting board and bringing it to KPMG, pleaded guilty and cooperated with prosecutors. He also reportedly settled the SEC’s claims and agreed to be barred from auditing public companies.
The publication added the settlement likely would not call for the expulsion of KPMG from any audit activities.
