U.S. Accuses Accountants of Trying to Game Reviews of KPMG Audits

Five former employees of KPMG and a former employee of the Public Company Accounting Oversight Board were charged with plotting to use confidential information before the board’s review of the company’s auditing work.CreditSam Mircovich/Reuters

By Matthew Goldstein

Five former employees of KPMG and a former government accountant have been charged by federal prosecutors with taking part in a plot to help the big accounting firm get a leg up in a regulatory review of its auditing work.

Federal prosecutors in New York said Monday that they had charged the group with trying to get confidential information about the review process from the Public Company Accounting Oversight Board, a government body that examines the auditing work of accounting firms.

In April, KPMG said it had fired six employees after learning of efforts to improve the firm’s score on examinations by the oversight board.

Prosecutors charged the former employees with conspiring to acquire confidential information about the board’s review process, including the timing of examinations and other issues, in order to improve KPMG’s overall scores.

The Securities and Exchange Commission, in a related civil enforcement action, compared the actions of the former KPMG accountants to “literally stealing the exam” to influence the outcome of the oversight reviews.

The S.E.C.’s lawsuit cites a text message from one of the defendants in which he describes having sent a “grocery list” of KPMG audits to be reviewed by the oversight board.

Federal prosecutors announced that one of the former KPMG employees, Brian Sweet, pleaded guilty on Jan. 5 to a conspiracy and wire fraud charge. Mr. Sweet is cooperating with the authorities, they said.

KPMG said in a statement that it promptly notified the authorities in early 2017 after discovering what its former employees had done. The firm added that it had since “taken remedial actions to assure that such conduct cannot happen again.”

Mr. Sweet, according to court filings, left the oversight board in 2015 for a job with KPMG. At the time, he took with him confidential information about the board’s planned review of audits conducted by KPMG. Mr. Sweet subsequently obtained additional confidential information from the board and shared it with other employees at KPMG, the authorities said.

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Four of the former KPMG employees were indicted by a federal grand jury on conspiracy and wire fraud charges. They are David Middendorf, Thomas Whittle, David Britt and Cynthia Holder.

Jeffrey Wada, who worked at the government accounting board, also was indicted.

Aside from Mr. Sweet, none of the accused have entered pleas. Richard Morvillo, the attorney for Mr. Sweet, said his client’s guilty plea was “taking a first step” toward addressing his mistakes.

Lawyers for the other people charged either could not be reached for comment or said their clients intended to contest the charges.

The authorities contend that after Mr. Sweet joined KPMG, he got confidential information from Ms. Holder, who at the time worked at the oversight board. After Ms. Holder joined KPMG, she then got confidential information from Mr. Wada, the authorities said.

Mr. Wada, they said, passed on confidential information to Ms. Holder at the same time he was trying to land a job at KPMG. The passage of confidential information had continued until early last year.