Six accountants, including former employees of a U.S. regulator, were charged Monday with leaking sensitive confidential data to KPMG to help the accounting firm clear regulatory inspections.
The Securities and Exchange Commission accused three former employees of the Public Company Accounting Oversight Board of sharing the information to tip off KPMG. All three either went to work for KPMG or tried to get a job there, the SEC said.
The accountants leaked the information at a time when KPMG needed to clean up its audit record, the SEC said. The agency’s chairman, Jay Clayton, called the alleged conduct “disturbing.”
Congress created the oversight board in the early 2000s, after the Enron and WorldCom accounting scandals, to help restore the public’s confidence in the audit industry.
The board inspects the quality of audits conducted by accounting firms like KPMG each year. The firm, one of the largest auditors in the country, handles audits for more than 600 customers, including big banks.
Manuel Goncalves, a KPMG spokesman, said the firm “promptly notified authorities” when it first learned about the matter in 2017 and has been “fully cooperating with the government on its investigation.”
According to the SEC and Justice Department, three former employees of the oversight board — Brian Sweet, Cynthia Holder and Jeffrey Wada — leaked the regulator’s plans to inspect KPMG audits from 2015 until February 2017.
Inspection plans are kept confidential so companies don’t have time to scrub their audits to fix any mistakes.
Steven Peikin, co-head of the SEC’s enforcement division, said in a statement the accountants “engaged in shocking misconduct — literally stealing the exam.”
Three former senior KPMG executives were also charged: David Middendorf, then-national managing partner for audit quality; Thomas Whittle, partner-in-charge for inspections; and David Britt, banking and capital markets group co-leader.
Federal prosecutors filed criminal charges Monday against all six.
A lawyer for Middendorf, Gregory Burch, declined to comment. Melinda Hagg, a lawyer for Britt, said the government “unfairly targeted” her client, and said the allegations against him “involve conduct that is simply not a crime.”
Sweet’s attorney, Richard Morvillo, said, “By stepping up and cooperating with federal government officials, Mr. Sweet has taken the first step in redressing his mistakes.”
Attorneys for the three other people charged did not return requests for comment.
William Duhnke, chairman for the oversight board, said the agency has cooperated with the government and plans to conduct a review of its internal controls.
“Today’s actions should send a clear signal that the misappropriation of confidential PCAOB information or otherwise undermining the integrity of our programs will not be tolerated,” Duhnke said in a statement.
According to the SEC, Sweet downloaded confidential documents from his computer before leaving the agency to take a job at KPMG in 2015. The allegedly stolen information included a list of clients that KPMG had audited and that the oversight board planned to inspect, the SEC said.
The government said KPMG recruited Sweet to the firm at a time when KPMG had a high rate of audit deficiencies. Nearly half of KPMG audits that the oversight board inspected in 2013 were found deficient, according to the SEC.
After joining the firm, Holder allegedly fed more confidential information to Sweet. Later, when Holder was hired at KPMG, they both received information from Wada, who was also looking for a job at the firm, authorities said.
The government said Sweet’s new bosses encouraged him to divulge confidential information, and that Middendorf, Whittle, Sweet, Holder and Britt all worked together to review the audit papers for at least seven banks that the oversight board planned to inspect.
The government did not disclose the names of those seven financial institutions.