I am currently boring my husband by obsessing over a recent insider trading case brought against a partner at KPMG. Many of you probably have heard of KPMG, a large audit firm with a strong reputation. Scott London was a 29-year veteran of the company, and was a senior partner. Despite all this success, he had admitted to providing insider information about several of his clients to a friend he met at a golf club. Over many years this friend, jewelry dealer Bryan Shaw, traded on those insider tips and made over a million dollars in profit. Shaw gave London an expensive watch and stacks of cash over the years. The curious part about the scheme is that it appears that there was no arrangement for kickbacks in place when London starting giving Shaw tips. Indeed, London has told authorities that he felt bad about financial problems that Shaw was having, so he passed along tips to his golf buddy.
He also gave Shaw some really bad advice. When Shaw was concerned about being caught, London reassured him that the SEC doesn’t care about “small fish” like him. He also told Shaw that the punishment for insider trading is essentially a slap on the wrist. Apparently London hadn’t read the newspaper lately, given all the multiple year sentences recently handed out.
Shaw paid London back for the bad advice by cooperating with the government and turning in his “friend.”
It all sounds so stupid, but London was a partner at a good audit firm, and presumably was well educated. In other words, could he have been that stupid? What was his motive? Why would he put his success at risk to make a golf buddy happy? Someone please suggest a feasible answer, and save my husband from my constant speculation.
6 Comments
Kristen Kruczkowski posted on April 18, 2013 at 9:12 pm
I think he really might have been that stupid. If money wasn’t the motive here, then I really don’t know what else could be. It honestly sounds to me like London wanted Shaw’s friendship more than anything. They met at a golf club (presumably a nice one given London’s monetary wealth), which means Shaw really couldn’t have been doing that badly finance wise. To me, it sounds like London was an arrogant man who thought he could get away with whatever he wants and that he was untouchable by the SEC. I think London just wanted to add another friend to his social circle and thought that giving insider trading tips was the way to do it. That sounds so high school, but it is the best explanation I can come up with..
Robin Wan posted on April 19, 2013 at 3:48 pm
I feel the fact that Scott London provided Shaw the insider tips is not the reason why London is stupid. One important fact about this case that bothers me is that Shaw realized what London did was wrong, concerning about being caught. Nevertheless, London ignored Shaw’s concern and did not realize the consequences of his action. Even London himself admit that he felt bad about the financial problem that Shaw was having. But how come he would think by breaking the law and providing insider information to Shaw could solve this problem. I think that London should be a very smart business person, but he lacks the ethical capability to identify what is right or wrong. London must recognize something is wrong when Shaw gave him cash and expensive watch. If he had solid ethical framework that helps him to make adequate decision, with his intelligence, he would make the right decision to refute Shaw’s offer and even to report him to SEC for bribery. I believe that London does not lack financial intelligence, but he needs to work on the decision-making processes on ethical issues. When a businessperson lacks both elements, he/she may fall into many pitfalls that we talked about in class.
Aisana Aitzhanova posted on April 28, 2013 at 2:00 pm
I am actually writing a response paper on this article for my finance class and it is interesting to see what you think. I personally believe, London is pretending he “felt bad” for accepting all those expensive gifts. He deliberately provided insider information, even though, working for a big audit firm, he knew how much was at stake if he got caught. Probably, what happened, is that London gave one tip to Show over golf, which turned out to be a profitable deal, and Shaw thanked his friend with an expensive watch. London saw advantage of such “innocent” tips and continued to give more. And I am sure he knew of the prison sentence for insider trading, he was just stupid enough to believe he would not be caught. Kickbacks were the motives here.
Andie Firestone posted on April 29, 2013 at 4:01 pm
This post makes more sense now that we have gone over Insider Trading in class. No matter the corporate or white-collar crime, it always baffles me to see these people decide to move forward with a fraudulent decision. So many people always get caught, so why risk it? Especially in a case like this, where it seemed like neither of these men were in dire need of cash, or rewards, in London’s case. I think they were acting stupidly because they clearly knew what they were getting themselves into. Although Shaw was technically cooperating with the SEC, the fact that he would take place in a crime like this in the first place says a little bit about himself. People who commit these crimes definitely hold a level of arrogance above others because they feel like they won’t get caught, and this is frankly a very bad and stupid attitude to have. The only reason I can think of as to why he would have provided this insider information to his golf friend is because he wanted to sound in the know and educated on rising stock prices. Even if that was the case, working for a large audit firm, he definitely should have known better.
Joe DiFilippo posted on May 1, 2013 at 11:10 am
I believe on the background of London that he simply was not aware of how the SEC has cracked down on insider trading and there are very serious consequences. It appears as though he was just helping out one of his buddies he golfed with since he was going through financial difficulties. He probably figured that there would only be a small fine involved or them not getting in trouble at all because it was not on a huge scale. However, the reputation of KPMG and his partner status definitely shows he should have known better because you need to be good at your job to get that high up at such a large company. It does not really make sense that he wasn’t aware of the regulations since he was in auditing.
Peter England posted on May 7, 2013 at 1:13 am
I don’t think there is an argument for stupidity here considering London was a senior partner at KPMG, a very respectable firm. The only alternative I can argue for is that some people’s ego’s are just bigger than their brains. Cash rewards did not seem like the motive here, so I think it was only for his personal enjoyment of helping his friend. However, I have no idea how he could possibly think that the SEC does not go after the “small fish”. Again, I do not consider that stupidity, rather just an ego where you consider yourself better than everyone else, and ultimately untouchable. Granted most people get away with insider trading, but when your buddy starts making profits in the millions, the average person would start to second guess themselves. I think once you make over a million, you change into a “bigger fish”, and that’s when London should have started to worry.
Shaw did actively participate in insider trading for a long time and should be punished for it, but it is a respectable thing that he came forward before being found guilty some other way. Now I’m not advocating for every to be a snitch, but it was simply the right thing to do. Shaw did not seem overconfident like London, so I hope it relieves him some punishment in the future.